Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

Oral Answers to Questions — Oral Answers to Questions

Mr. Speaker: Order. Questions and answers have been getting much longer recently. I appeal to the House for briefer questions and therefore briefer answers.

TRANSPORT

Goods-only Railway Track

1. Mr. Gwilym Roberts: asked the Secretary of State for Transport how many miles of goods-only railway track have been opened to passenger traffic since May 1979.

The Under-Secretary of State for Transport (Mr. Reginald Eyre): I understand from the Railways Board that 35 route miles of goods-only lines have been opened to passenger services since May 1979.

Mr. Roberts: In view of those appalling figures, will the Minister take this opportunity to reject some of the more lunatic suggestions in the Serpell report? Does he agree with the principle of opening some lines for passenger traffic? If so, will not the opening of the Walsall to Rugeley line have enormous economic and social benefits?

Mr. Eyre: Reopening the Walsall line is entirely a matter for the Railways Board and the local authority concerned, which has power to make grants to public transport operators. The Serpell report is important and its handling will be dealt with by my right hon. Friend in answer to a later question. There has been wild and deplorable speculation on aspects of the Serpell report, with which my right hon. Friend will deal.

Motorway Repairs

Mr. Knox: asked the Secretary of State for Transport whether he is satisfied with the speed with which motorway repairs are undertaken.

The Under-Secretary of State for Transport (Mrs. Lynda Chalker): In general, yes, but we are always trying to do better.

Mr. Knox: Why does so much motorway seem always to be under repair? Why does it always seem to take so much longer to effect repairs here than in other countries?

Mrs. Chalker: Perhaps my hon. Friend has not been in other countries as much as he has obviously been at home. I assure him that we do not take longer than other countries to effect repairs. To some extent we are the

victims of our own success. We have 20-year-old or more roadways that have taken far more traffic than they were designed for. We must make the best use of our investment in motorways by maintaining them regularly and carrying out our rolling programme of improvement. We are renewing 70 miles of motorway each year. As soon as we have finished restructuring and resurfacing work, it will be easier to do that.

Mr. Skinner: Is the Minister aware that it is pleasing to know that the British are pretty quick at improving motorways and getting repairs completed? Is she further aware that the Prime Minister keeps lecturing and telling us that the Germans and the Japanese are better than us at everything?

Mrs. Chalker: The speed of restructuring and resurfacing work depends entirely on the type of roadway being dealt with. Speed varies considerably from country to country. We do not do at all badly by international standards.

Mr. Robert Atkins: Why are miles of the M1 and M6 coned off when there appears to be no work going on?

Mrs. Chalker: Cones are required for several reasons, as I think my hon. Friend knows. They are used to protect concrete which is still setting. That can take some time. They are used to mark off excavated areas that must settle before more work can be carried out. They are also used so that damage to safety fences can be repaired. Sometimes weather conditions following the first stage of repairs or reconstruction do not remain suitable for the next stage to take place. Cones are not used unnecessarily on any motorway.

Road Works (Acton)

Mr. Greenway: asked the Secretary of State for Transport if he will make a statement on the progress of trunk road works and compensatory arrangements for those adversely affected in Perivale, Greenford and Northolt.

Mrs. Chalker: The three contracts on this length of the A40 are progressing satisfactorily. Negotiations on compensation for loss of land and property are either completed or under way. Noise insulation is being provided for eligible dwellings.

Mr. Greenway: I thank my hon. Friend for that reply and for the care that she and her Department have taken over road works in that part of my constituency. Is she aware that many people are suffering to the point of having to take tranquillisers to steady their nerves? Will she assure me that people and their property will be looked after and completely protected from the effects of the road works?

Mrs. Chalker: I thank my hon. Friend for his comments about the help that he has received from the Department. There are three quite separate elements to compensation. The first is for loss of property, the second is to help with noise prevention and the third is for loss of amenities. All those matters will be dealt with. Negotiations are proceeding for the double glazing of about 200 properties, and we have completed about three-quarters of the qualifying properties about which my hon. Friend has been so concerned.

Diesel Multiple Unit Fleet

Mr. Straw: asked the Secretary of State for Transport what investment approval he has given for the replacement of the diesel multiple unit fleet of British Rail.

Mr. Eyre: My right hon. Friend has approved the construction of 40 light-weight vehicles as the first stage in a major construction programme. We look forward to receiving the Railways Board's proposals for medium-weight vehicles in due course.

Mr. Straw: Is the Minister aware that, because of the Government's continued delays and refusals to pump cash into British Rail to replace the ageing diesel multiple units, staff and passengers on lines such as the north-east Lancashire and many others must endure discomfort, or even worse? When does the Minister expect the fleets to be replaced not only by the light-weight but by medium-weight units? What funds will the Government allocate to the project?

Mr. Eyre: The hon. Gentleman is wrong in his allegations about Government contributions. British Rail's investment ceiling has been maintained in real terms, and public support is at a record level. The hon. Gentleman should understand that everyone wishes the ageing fleet of diesel multiple units to be replaced. British Rail has brought forward plans for light-weight vehicles, and will produce plans for medium-weight vehicles. Decisions on placing further orders will rest with the Railways Board, subject to any investment approval that it may need from my right hon. Friend.

Mr. Stokes: Why has the new investment on the St. Pancras-Bedford line not yet been utilised, even though £150 million of taxpayers' money was spent on the project a long time ago?

Mr. Eyre: I very much regret that ASLEF is stopping that important investment being brought into proper use. My hon. Friend's question emphasises the tremendous importance of improved productivity to the future of the railways system.

Mr. Booth: Does the Minister agree that the investment ceiling to which he referred has become absolutely irrelevant for British Rail, and that the combined effect of the external financing limit and lack of Government investment approvals has been to reduce the real investment expenditure in every year since the Government took office?

Mr. Eyre: As the right hon. Gentleman knows, a great deal of resources, which would have been available for investment in British Rail, have been lost because of the enormous cost of strikes—no less than £240 million last year.

Rural Areas (Transport)

Mr. Beith: asked the Secretary of State for Transport what plans he has to improve public transport in rural areas.

Mr. Eyre: I shall continue to encourage county councils to use their transport co-ordinating and revenue support powers judiciously. I shall also continue to encourage small private operators, which can sometimes provide services which larger operators find no longer economic, and the development of less conventional modes of transport.

Mr. Beith: Is the Minister aware that in some rural areas, such as Northumberland, increasing efforts have been made to co-ordinate rail and other forms of transport to provide a network of rural services, including having post buses meeting trains? Will not all those efforts be entirely destroyed if major railway lines, such as those between Newcastle and Edinburgh and Newcastle and Carlisle, are closed?

Mr. Eyre: I hope that the hon. Gentleman was in the Chamber earlier when I made it clear that wild, speculative statements had been made about the railway system. My right hon. Friend the Secretary of State will deal with aspects of the Serpell report in reply to a later question.

Sir John Biggs-Davison: Will my hon. Friend, for the encouragement of others, publish information about the participation of private operators for the benefit of rural areas, including Essex and Epping Forest?

Mr. Eyre: My hon. Friend makes a good suggestion. My Department is extremely active in encouraging county councils to consider various modes of unconventional transport arrangements to assist in dealing with problems in rural areas. We shall give serious consideration to my hon. Friend's suggestion.

Mr. Weetch: Can the Minister give information about one rural area—Suffolk? What is the result of the Department's opinion on the inquiry into the western section of the Ipswich bypass? Will there be an announcement in the near future?

Mr. Eyre: That is a road matter for which my hon. Friend is responsible. She will write to the hon. Gentleman.

Serpell Report

Mr. Adley: asked the Secretary of State for Transport if he will make a statement on the Serpell report.

Mr. Ron Lewis: asked the Secretary of State for Transport what action he intends to take on the recommendations of the Serpell report on British Rail finance.

Mrs Dunwoody: asked the Secretary of State for Transport if he will publish in full the report of the independent committee to review British Rail's finances, chaired by Sir David Serpell.

Mr. Colin Shepherd: asked the Secretary of State for Transport when he will now publish the Serpell report on British Rail.

Mr. Booth: asked the Secretary of State for Transport if he will make a statement on the Serpell committee's report on British Rail's finances.

Mr. Spriggs: asked the Secretary of State for Transport what action he intends to take on the recommendations of the Serpell report on British Rail finances.

The Secretary of State for Transport (Mr. David Howell): The full reports and detailed supporting work of the Serpell committee will be published tomorrow at 2.30 pm and will, of course, be available to all hon. Members at that time. I also hope to make a statement to the House then.

Several Hon. Members: rose——

Mr. Speaker: Order. I propose to call first the six hon. Members whose questions are being answered.

Mr. Adley: Does my right hon. Friend agree that it is thoroughly unsatisfactory that the press has analysed, and the British Railways Board has discussed and apparently rejected, the contents of a report that the House has not seen? My hon. Friend the Under-Secretary of State has this afternoon said that the speculation has been wild and deplorable and wild and speculative. Is my right hon. Friend aware that that is because we have not seen the report and have had to rely on rumour to know what has been happening? Before the recess I suggested that it would be in the Government's interest to publish the report, without comment, so that all hon. Members could have an equal opportunity to read it. May we look forward to a change in procedure?

Mr. Howell: I wholly agree with my hon. Friend that the alleged leaks and speculation have been deplorable. The comments have been speculative and grossly distorted in many cases. As soon as the manuscripts of the report were received, I informed the House and authorised publication. There are many maps in the supporting documents and publication was not physically possible before tomorrow, when the full documents will be available to hon. Members.
Manuscript copies were sent to the British Railways Board on a confidential basis as soon as I received them. It was right to do that, as the report obviously concerned British Rail and its operations. Those were the only manuscript reports circulated outside the Government.

Mr. Lewis: Is the Secretary of State aware of the wide revulsion in all sections of the community towards the contents of the Serpell report so far leaked, especially the part that recommends wholesale closures by British Rail? Will he confirm his predecessor's view that Beeching-style cuts in British Rail would be a disaster and give the House a clear undertaking that he will loyally uphold his predecessor's decision?

Mr. Howell: I repeat that the speculation is, in many cases, wholly and wildly inaccurate. I ask the hon. Gentleman to await the report and documents, which will be published in full tomorrow, and also my statement, and not to make the mistake of some right hon. and hon. Members, who rushed to condemn the report before they could carefully study the substantial work involved.

Mrs. Dunwoody: If the Secretary of State is so certain that the comment has been wild, will he give an absolute guarantee that no suggestion that in any way damages British Rail Engineering Ltd. will be accepted by him? Does he accept that it must not be privatised or sold, and that the degree of engineering expertise available to it is one of the strongest cards held in Britain? Should we not do everything possible to encourage it and its export markets?

Mr. Howell: The hon. Lady will have the full report in her hands soon. I ask her to await it and to study it. She will find much valuable information in it on that subject.

Mr. Shepherd: Is my right hon. Friend aware that I share the disappointment of my hon. Friend the Member for Christchurch and Lymington (Mr. Adley) at the manner in which publication of the report has been handled, because any leakage of whatever dimension would seem to have come from the railways side? In view

of the great uncertainty that the leakage has created about the future of rural railways, electrification and many other matters, does my right hon. Friend agree that it behoves British Rail to work in conjunction and co-operation with the Government rather than to seek to box them in.

Mr. Howell: I have expressed my strong feelings about all the speculation that has taken place. Some have described it as "astute", but I believe that it is counterproductive and highly damaging to the future interests of the railways and their users.

Mr. Booth: What useful purpose has been served by delaying publication of the Serpell report until tomorrow? As the right hon. Gentleman has said that many reports have been inaccurate or misleading, will he tell us whether the reports that one of the options was a 40 per cent. increase in commuter fares and that options for substantial cuts in the network were inaccurate? If those reports were inaccurate, will the Secretary of State give a clear assurance that the Government have no intention of proceeding with any proposals on those lines?

Mr. Howell: There has been no delay in the publication of the substantial reports and detailed supporting work. They are to be made available to Members of the House at 2.30 pm tommorrow, which is the first time that it is physically possible for them to be made available in printed and published form. There has been no delay at all in these matters.
As for inaccuracies, of which the right hon. Gentleman has just repeated one or two, I repeat what I said earlier. To go on record condemning a report before there could possibly he time for it to be published and studied seems to me to verge on silliness.

Mr. Spriggs: Does the right hon. Gentleman accept that if the Government carry out any part of the leaked report—I stress "leaked", because none of us has seen the printed report—or instruct the railway authorities to carry out its recommendations, it will be a virtual death sentence for the railway system as we know it? In view of the intense interest of the nation in this matter, will he give an undertaking today that, following publication of the Serpell report, there will be a full day's debate on the subject in the House?

Mr. Howell: I ask the hon. Gentleman, who has considerable experience in these matters, to await the full report and the supporting detailed analysis, which I believe he will find extremely interesting and valuable. I have no doubt that he will have the opportunity, which will be welcomed by many, to participate in the invormed public debates and discussions everywhere on the issues involved when the report has been published.

Mr. Crouch: Is my right hon. Friend aware that one aspect of the Serpell report that has leaked out is that commuters in the south-east, several thousand of whom are my constituents, will have to pay as much as 40 per cent. more to get to work in London? I hope that when my right hon. Friend has had a chance to study the report he will quickly scotch that rumour.

Mr. Howell: That is among the many speculations that have been made. As I have said, they are widely inaccurate. I assure my hon. Friend that when he has the opportunity to study the report fully—it will be published


in full very shortly—he will discover that many of the so-called leaks are not leaks at all but manufactured speculations bearing no relation to what is in the report.

Mr. Campbell-Savours: Will the Secretary of State incinerate the minority Goldstein report, which proposes that track product orders from British Rail be diverted to overseas producers, especially as the existing track producer in the United Kingdom in my constituency is highly competitive in international markets and exports more than 60 per cent. of its total production? Is he aware of the resentment that this has created in BSC towards the Serpell report and its findings?

Mr. Howell: I do not think that burning reports is a healthy course to follow. As I have said before, the hon. Gentleman should await the full report and detailed supporting work, which will be in his hands very shortly, and then make his comments, rather than follow the foolish course of condemning the report before he has even seen or had time to study it.

Dr. Hampson: When my right hon. Friend considers the options in the Serpell report, will he bear in mind that many Conservative Members have branch lines in their constituencies, such as the Harrogate-York line, which now carries 900,000 people and which, although loss making, we regard as crucial to the economy and to society?

Mr. Howell: I ask my hon. Friend to await the report. I am sure that he will find what it says about all these aspects valuable and useful.

Several Hon. Members: rose——

Mr. Speaker: Order. It is clear that there will be an opportunity for questions on the report after the statement tomorrow. I shall call one more hon. Member from each side and then move on.

Mr. Whitehead: Is the Minister aware that it is not our fault that today we can discuss only the report's antecedents and not its contents? Why was it thought appropriate for the firm of Travers Morgan to produce the report on British Rail Engineering Ltd. which would apparently decimate all the rail workshops in this country, in view of the malign influence of Mr. Goldstein on the committee?

Mr. Howell: I do not expect the hon. Gentleman to believe everything that he reads in the press. I hold him in higher esteem than that.
Experienced consultancy back-up was required by the committee, and it was considered by far the most efficient arrangement to appoint consultant firms which could work directly with the distinguished committee members.

Sir Albert Costain: Is my right hon. Friend aware that the availability of the report to hon. Members at 2.30 pm rather than 3.30 pm tomorrow is greatly welcomed by Back Benchers, but will he go the whole hog and make it available at 1.30 pm?

Mr. Howell: The volumes concerned are substantial. I wish to be absolutely sure that they are available in the Vote Office so that hon. Members may have the first opportunity to see and examine the considerable work involved.

Trunk Roads

Mr. Roy Hughes: asked the Secretary of State for Transport how many miles of non-motorway trunk roads will be resurfaced in the current financial year, following the transfer of another £20 million to the trunk road maintenance budget.

Mrs. Chalker: The resurfacing of non-motorway trunk roads involves a great number of individual schemes every year. The lengths and widths of road resurfaced vary widely. It is not therefore possible at reasonable cost to express those schemes in terms of a single mileage for 1982–83. However, as a result of the transfer of the £20 million to the trunk road maintenance budget, a total of £56 million will be spent in 1982–83 on non-motorway trunk road structural repairs.

Mr. Hughes: What proportion of the total road budget does that represent? As non-motorway trunk roads carry a far greater proportion of traffic than motorways, does the hon. Lady envisage any further transfer in the near future?

Mrs. Chalker: The increase from £36 million to £56 million is more than 50 per cent. for the non-motorway trunk road budget. I believe that with current spending the figure is now about 40 per cent. I shall let the hon. Gentleman have the exact figure.

Mr. Sheerman: Will the modernisation of non-motorway trunk roads provide an opportunity to improve the general facilities on those roads, which are at a very low level compared with those of our European counterparts?

Mrs. Chalker: I am aware that facilities on many non-motorway trunk roads are lacking. I have been considering for individual roads schemes for the provision of toilets and safe stopping places in addition to parking areas. I emphasise, however, that, especially where a road is not a dual carriageway, the safety aspects of exit and entry must be considered.

Metropolitan Counties (Public Transport)

Mr. Cryer: asked the Secretary of State for Transport when he next expects to meet representatives of metropolitan county councils to discuss public transport.

Mr. Eyre: My right hon. Friend and I are open to further meetings and have welcomed the useful discussions that have already taken place, including those with West Yorkshire.

Mr. Cryer: When the Minister meets those representatives, why does he not take notice of what they say? Does he understand that all the metropolitan county council representatives are totally opposed to the imposition of the transport guidelines in the Transport Bill, wish to see local authority democracy retained and thus have the right to determine their own public passenger fare levels? Does he not understand that when the metropolitan county councils are forced by the viciousness of his legislation to increase fares, it will be entirely because of the Conservative Government imposing their jackboot heel policies on local authorities?

Mr. Eyre: Arrangements for services and fares are the responsibility of the PTAs. It is good that the wider allegations that we used to hear are being made much less frequently now. Furthermore, the final decisions on


services and fares that are to be charged in these areas will be made by the local authority, which contradicts the allegations that the hon. Gentleman has constantly made.

Mr. Chapman: In any discussions on public transport with representatives of the metropolitan counties, will my right hon. and hon. Friends bear in mind that this year London Transport will receive subsidies totalling no less than £290 million, which represents 36 per cent. of its total costs? Will he also bear in mind that many Londoners believe that the capital city, in receiving 45 per cent. of the total transport supplementary grant next year, is being fairly and favourably considered?

Mr. Eyre: I am grateful to my hon. Friend for mentioning those favourable factors affecting London. Central Government provides 40 per cent. of the total subsidy that my hon. Friend mentioned. That is equivalent to 15 per cent. of the total cost. That shows how grotesquely wrong is the 3 per cent. figure which the GLC has quoted in some of its misleading propaganda.

Mr. Leadbitter: The Minister will accept that it is vital that discussions take place with the metropolitan and non-metropolitan counties. At least that is a bonus, whether the Government take notice or not. Nevertheless, rail is an important part of public communications and concerns these county authorities. If the Minister is discussing these matters with them, is it not right and proper that his right hon. Friend should say today that we will have a full debate on the Serpell report?

Mr. Eyre: I have already given a full answer about the Serpell report. The hon. Gentleman is quite right to emphasise the importance of discussions with the metropolitan authorities. Those discussions are proceeding wherever possible and we welcome them. My right hon. Friend and I are quite prepared to receive further evidence which is relevant to the calculation of the protected expenditure levels.

Vehicle Testing Stations

Mr. Robert Hughes: asked the Secretary of State for Transport if he has now concluded an agreement with Lloyd's Register on the future of heavy goods vehicles and public service vehicles test stations.

Mrs. Chalker: Discussions with Lloyd's Register of Shipping are at an advanced stage but we are not yet in a position to announce final agreement. I hope to be able to come to the House with further news soon.

Mr. Hughes: Is the Minister aware that she is in grave danger of tedious repetition by coming to the House month after month saying that she hopes to announce agreement soon? Why are the discussions taking so long, especially since the most recent Transport Act was passed only because it was said that agreement would be reached soon? Will she give a categoric assurance that the terms and conditions for staff, including the entitlement to any redundancy payments, will be fully protected with regard to the state of those conditions as and when the Bill passed through the House?

Mrs. Chalker: If the hon. Gentleman continues to ask me the same question when he knows that proceedings will take a little longer, he will receive the same answer. However, I wish to reassure him that the terms and conditions available to vehicle testing staff are still under

discussion. I firmly believe that it is important to get this right, which is perhaps why it has taken longer—since November when the Bill received Royal Assent—than the hon. Gentleman hoped for. We have made it clear that we shall consider the possibility of special compensation if, in the event, terms for transferring are significantly less favourable than those at present available. The question of redundancy procedures and payments should not thus arise for those who transfer.

Mr. Andrew F. Bennett: Is the Minister aware that when she has to come to the House to give the same answer each time she does a great deal of damage to the morale of all those who work in the vehicle testing centres, who do not like and are unhappy about all the uncertainty? Is it not high time that she improved their morale by letting them know now where they stand rather than promising reports in the future?

Mrs. Chalker: This is the second month in which the hon. Member for Aberdeen, North (Mr. Hughes) has asked his question. I have said that we are proceeding thoroughly with these discussions because they are fundamentally important. I am afraid that I must disagree with the hon. Member for Stockport, North (Mr. Bennett). Morale is good in the heavy goods vehicle testing stations. We look forward to a continuation of their good work under the new system when the transfer takes place.

Rail Services (Privatisation)

Mr. Allan Roberts: asked the Secretary of State for Transport what consideration he is giving to privatisation of any of the services provided by British Rail on passenger trains.

Mr. David Howell: I understand that the Railways Board is considering the scope for private involvement in train catering on a number of services. I welcome this.

Mr. Roberts: Will the Secretary of State give an assurance that the removal of sleeper cars from the intercity services to Liverpool and Manchester has not been done as a first step to their privatisation? Does he not realise that handing over Britih Rail catering to private firms will only provide a service as efficient, cheap and wholesome as that provided at the motorway service stations?

Mr. Howell: The operation of sleeper car services is a matter for the chairman of British Rail. With regard to British Rail catering, it would be fair to say that, like the curate's egg, it is excellent in parts.

Dr. Mawhinney: Will my right hon. Friend not only welcome British Rail's examination of privatising catering but encourage it to proceed more quickly?

Mr. Howell: I have already said that I welcome this initiative.

Mr. Sheerman: Will the Secretary of State urge British Rail to look seriously at the privatisation of southern suburban commuter services? We understand from the Serpell report—albeit the leaked Serpell report—that there is massive feather-bedding of commuters living in the south of England, to the detriment of those living everywhere else in the country.

Mr. Howell: The hon. Gentleman has been feeding himself with inaccurate speculation. I advise him to await the report.

Mr. Colin Shepherd: Is it not the case that motorway catering and service standards have improved enormously since privatisation?

Mr. Howell: Yes, it is. We have many instances where privatisation has greatly increased the efficiency of the service provided.

Mr. Leadbitter: Will the Secretary of State accept that any privatisation consideration within British Rail is entirely a part of the economic consideration of British Rail's future?
Against the background of the economies and economic considerations of British Rail, is the right hon. Gentleman prepared to have the Serpell report, which is an economic consideration of British Rail, debated in the House?

Mr. Howell: The final decisions on debates must be for the Leader of the House. He will have noted what has been said. It is an immensely important and valuable report, which will be available to us shortly. I am sure that it would be right for the House and the public to have full opportunities for debate. My right hon. Friend will take note of what has been said.

Motorways (Traffic Flows)

Mr. Mawby: asked the Secretary of State for Transport which sections of motorways have average daily traffic flows in excess of their design standards.

Mrs. Chalker: As I explained to my hon. Friend the Member for Ashford (Mr. Speed) on 30 April 1982, we no longer work to design standards which are fixed in relation to traffic flows; so I cannot specify the degree of excess flows in the way requested. We recognise that delays can occur when traffic flows reach a certain level, which varies according to local circumstances, and traffic flows can attain these levels for short periods during peak hours on certain sections of MI, M4, M5, M6, M62 and M63.

Mr. Mawby: Bearing in mind the high cost of disruption that repairs of these motorways cause, is any consideration being given in the design of future motorways to extend the design life, which at present is, I understand, about 20 years?

Mrs. Chalker: In the current year we have reduced the delays due to motorway repairs. Our current practice is to adopt a design life of 20 years for new bituminous roads and 40 years for new concrete roads. In determining the strength of a road we take into account the level of future traffic, which is always uncertain, and the capital cost of provision. Varying strengths of roads have been monitored over the years by the TRRL and this work provides a good basis for decisions. We are considering the design life criteria, because I believe that it is high time that they were reviewed.

Mr. Snape: As traffic flows on Britain's motorways have consistently failed to match those projected by her Department's civil servants before construction, will the hon. Lady consider referring these sections of motorway to Sir David Serpell with a requirement that he treat them in exactly the same way as he treated the railway system, and close them down?

Mrs. Chalker: The hon. Gentleman is requesting detailed knowledge, for which I must ask him to give me

notice. Problems have occurred when flows have been higher than those anticipated 20 or 30 years ago. Where possible, hard shoulders have been strengthened so that they can take running traffic during repair periods. This is already being done. Many new developments that are available through new technology are being carried out very well and efficiently by officials in my Department as well as by many British construction companies, of which we are proud.

Mr. Neale: When my hon. Friend arranges for surveys to be undertaken on trunk roads and motorways in the west country, will she please ensure that the times and dates upon which the surveys are conducted take proper account of the abnormal seasonal traffic flows to the west country? Will she ensure also that these statistics feature in her deliberations on whether further extensions are necessary?

Mrs. Chalker: We shall do that, because no survey is correct unless it views an entire year. Traffic flows in different areas peak at different times.

Mr. Park: If design factors are not related to traffic flows, is that why we have at the beginning of the M1, which caters for the Midlands, a motorway network that is continually in a state of repair, with one-lane traffic causing tremendous confusion and accidents?

Mrs. Chalker: First, there have not been a tremendous number of accidents, but there have been far more than any of us would like. We must remember that the most southern part of the M1 is the oldest motorway in Britain, having been in use for more than 20 years and therefore requires restrengthening. The two-lane section is being brought up to three-lane standard and three lanes are now open on the southbound section. I assure the hon. Gentleman that where there is great peaking of traffic we can build to the best standard for the costs involved. We do not take traffic flows into account in isolation. We take into account, for example, the cost of widening. A good example is the M4 elevated section, which has extremely high traffic flows. The cost of widening that section would be so prohibitive that it would not make sense.

British Rail Engineering Ltd.

Mr. Stott: asked the Secretary of State for Transport if he will meet the chairman of the British Railways Board to discuss the future of British Rail Engineering Ltd.

Mr. David Howell: This is among the matters the chairman and I will be discussing in the light of the Serpell committee's reports.

Mr. Stott: The Secretary of State will be aware that the British Railways Board withdrew the closure notices that were placed on Shildon, Swindon and Horwich in my constituency last year. Will he make a clear and unequivocal statement that he will ignore the leaked recommendations in the Serpell report to close down or to sell off British Rail workshops, especially those in Shildon, Swindon and Horwich? He must be aware that the closure of these workshops would represent a disaster for those towns, which depend on the workshops for what little employment still remains.

Mr. Howell: The problem of British Rail Engineering Ltd.'s costs and capacities is one that has worried hon. Members and there has been concern in the industry for


some time. The problem remains. In the light of the Serpell report and the debates that will follow, there will be important new information and important matters to discuss. I ask the hon. Gentleman to await the full report, which will shortly be with him, when he will find that he will be able to make a full contribution on the issue that concerns him.

Mr. Stoddart: Is the right hon. Gentleman aware that the problem of the workshops is not that there is insufficient work to be done? There is much work to be done on the railways to renew the clapped-out system and those who are employed in the workshops are only too ready and willing to undertake it if the right hon. Gentleman will only make it possible financially for them to do so.

Mr. Howell: I wish that were so, but in some instances there is no longer a demand for equipment that was manufactured in the past on any of the world's railways, including British Rail. I want to see more investment in British Rail. The external financing limit that has already been announced for next year will allow an increase in the scope for investment, which I welcome. The higher the investment the more effective British Rail will be in cutting costs. The draining away of vast sums on futile strikes last year has not set a very good position for the future.

Dr. Hampson: As I come from Shildon—I was born there—may I ask my right hon. Friend whether the product line in Shildon is good enough for most of the markets around the world? If it is not, are there any means by which a new line of development can be started in the Shildon works?

Mr. Howell: These are matters which I know the chairman and board of British Rail have been considering carefully. There are problems of capacity and of making the equipment that is now needed. I know that British Rail's staff and chairman are considering these matters closely.

Mr. Michael Martin: Will the right hon. Gentleman bear in mind that the Glasgow, Springburn workshops are the only British Rail workshops left in Scotland? In the community that I represent the unemployment rate is over 30 per cent. If anything happens to the workshops, a community will be destroyed. The only area in which apprentices are being taken in at present is that of the British Rail workshops. If they close, we shall be destroying the future for young people in the community that I represent.

Mr. Howell: I am sure that the social implications as well as the economic ones of a changing industry and its problems will be carefully borne in mind, as in the past, by the British Railways Board.

British Rail (Investment)

Mr. McNally: asked the Secretary of State for Transport when he next intends to discuss British Rail's investment programme with Sir Peter Parker.

Mr. Hicks: asked the Secretary of State for Transport when he next expects to meet the chairman of the British Railways Board to discuss investment in the railways.

Mr. David Howell: I meet the chairman frequently to discuss matters of mutual interest.

Mr. McNally: Is the Secretary of State aware that rail users can now see for themselves the deterioration in the railways that has been caused by his policies, and that most Members know that railway investment programmes in their regions and constituencies could bring men back to work and improve the service? When he sees the chairman, will he make it clear that for most rail users the only post-Serpell resignation that they will want is his own?

Mr. Howell: The hon. Gentleman should think also about the colossal contribution that taxpayers make to support the railway system and the concern that the traveller and taxpayer have not necessarily been getting value for money. These were the matters that led British Rail eagerly to seek the Serpell review and to welcome the members of the committee when it was set up. These were the factors that led it to take the view that the review was needed. In the light of the review, I believe that the debate will be carried forward.

Mr. Stephen Ross: When the right hon. Gentleman next meets the chairman, will he please receive sympathetically the application that British Rail Sealink has made to him to be given sufficient money to put in an order for the replacement of passenger boats on the Rye-Portsmouth route? He will be delighted to know that next month, for the second or third year in succession, we shall go back 50 years when we start to go over to the island on a car ferry on which we shall be exposed to all the elements. May we please have priority given to our replacement boats so that some business is given to us on the Isle of Wight?

Mr. Howell: I shall draw the hon. Gentleman's point to the chairman of British Rail.

Mr. Eggar: When my right hon. Friend meets the chairman, will he urge him, whatever else he does, to sell Sealink?

Mr. Howell: It is the present intention of the board to try to sell the Sealink subsidiary.

Serpell Report

Mr. Snape: asked the Secretary of State for Transport what discussions he has had with the railway trade unions on the report of the Serpell committee on British Rail finances; and if he will make a statement.

Mr. David Howell: None. I shall welcome the views of all parties when the reports are published.

Mr. Snape: Am I indulging in idle speculation in saying that the Serpell report proposes a reduction in the railway network of 1,600 miles, a reduction in safety standards for British Rail, the parcelling up and selling of British Rail Engineering Ltd. and substantial fare increases for commuters, especially in London and southeast? Am I speculating, or is that what is contained in the report?

Mr. Howell: The hon. Gentleman is speculating.

CIVIL SERVICE

Civil Service Unions (Meeting)

Mr. Canavan: asked the Minister for the Civil Service what subjects he proposes to discuss at his next meeting with trade union representatives of the Civil Service.

The Minister of State, Treasury (Mr. Barney Hayhoe): Plans for my next meeting with the Civil Service unions have not yet been made.

Mr. Canavan: Will the Minister discuss the need to improve staffing levels, especially in the Department of Health and Social Security and in employment offices, so that a better standard of service can be provided to the increasing number of unemployed who must often queue for ages for the payment of benefit to which they are entitled? Why is there a shortage of staff to help the unemployed, while extra staff seem to be recruited to special investigation squads that simply hound and harass the unemployed?

Mr. Hayhoe: Extra staff have been employed both in unemployment benefit offices and in the DHSS, but the detailed arrangements are the direct responsibility of my right hon. Friend the Secretary of State for Social Services.

Sir John Biggs-Davison: Has progress been made in the consideration of no-strike contracts in the public service?

Mr. Hayhoe: My hon. Friend may remember that those matters were dealt with in the Megan commission report. He will also know that negotiations with the unions on the basis of the recommendations of that report are now starting.

Mr. Foulkes: When the Minister meets the trade unions, will he discuss the unfortunate position whereby civil servants cannot take complaints to the ombudsman? One example is the recent case in my constituency of Mr. Alastair Dewar, where there was an admitted failure by the Department. Mr. Dewar asked the ombudsman to consider his case, but the ombudsman could not do so. Does that not restrict the civil rights of some of our citizens by not allowing them to make complaints to the ombudsman?

Mr. Hayhoe: I am prepared to discuss the matter with the unions if they so request, and I shall examine the point raised by the hon. Gentleman.

Mr. Alan Williams: When the Minister meets the unions, how will he reconcile his assurance that there will be genuine negotiations in this year's pay round with the Government's even stronger commitment to a 3½ per cent. cash limit? Will he admit to the House that the Government are operating an incomes policy for the Civil Service and that since the previous pay comparison in 1980, whereas prices have risen by 32 per cent., Civil Service pay has risen by 14 per cent., which is a shortfall of 18 per cent.?

Mr. Hayhoe: The Government have made it clear, for this year's pay negotiations with the Civil Service, that the 3½ per cent. figure is part of the public expenditure planning process for this year. The Government believe that to be a reasonable provision. Rateable inflation is already much lower than it was at this time last year. There

is no reason why the announcement of the 3½ per cent. figure should preclude genuine negotiations. It is neither a pay norm nor an entitlement.

Efficiency and Effectiveness (White Paper)

Mr. Eggar: asked the Minister for the Civil Service what role the Management and Personnel Office is playing in assisting other Departments in preparing responses to the White Paper on efficiency and effectiveness in the Civil Service.

Mr. Hayhoe: As explained in the White Paper, the Management and Personnel Office is directing the financial management initiative jointly with the Treasury. MPO staff are fully involved in the joint steering machinery, which has issued guidance to Departments and which will examine the responses. The MPO is also helping Departments directly through the joint MPO/Treasury financial management unit, and has directed the 1982 review of running costs, the report of which will be available shortly.

Mr. Eggar: In the direct assistance that the financial management unit is giving to Departments, can my hon. Friend confirm that special importance is attached to ensuring that Departments have proper management information and accounting systems? Is that not much more important than the rest of the financial management initiative?

Mr. Hayhoe: I agree with my hon. Friend about the importance of the two matters to which he referred. I also welcome the constructive comments and encouragement in my hon. Friend's recent Bow group memoranda, which dealt with many of those matters.

Mr. Stoddart: Is the Minister aware that the real test of efficiency and effectiveness is what the public think about a service and the effect of that service on the public? Is he aware that, for example in my constituency, staff at the DHSS office has been reduced by three while the work load has increased by 50 per cent., thus hurting many people, especially claimants, in Swindon? Will he try to ensure that the Civil Service is effective at the point of use?

Mr. Hayhoe: As I explained in answer to an earlier question, the details of DHSS offices are clearly a matter for my right hon. Friend the Secretary of State for Social Services. I do not agree that one should exclude cost effectiveness and value for taxpayers' money from considerations of efficiency in the Civil Service.

Mr. Alan Williams: When replying to the White Paper, will the hon. Gentleman, as a Treasury Minister, outline how many of the savings claimed by Treasury Note 5 to the Select Committee have been lost to the Government in the form of tax that is no longer collected, national insurance contributions that are no longer collected, unemployment benefit that is paid to those who have been left in the dole queue instead of being recruited to fill the vacancies, and payments that are made to contractors who are carrying out the work that was previously done by civil servants? Is it not true that the net saving to the Government is a minute fraction of that which the Government claim?

Mr. Hayhoe: I repudiate that statement. The reduction in civil servants has meant a net saving to the Government


of about £½ billion a year on the pay bill, which is a substantial sum. Although extra expenditure is involved in some privatisation arrangements, overall the entire exercise has been good value for the taxpayer.

Ethnic Monitoring

Mr. Greville Janner: asked the Minister for the Civil Service when he expects to publish volume II of the survey in Leeds on ethnic monitoring in the Civil Service.

Mr. Hayhoe: The results of the job applicant part of the Leeds survey, which ran from 1 May to 30 September last year, should be ready for publication in March.

Mr. Janner: Does the Minister recognise the great urgency with which the work should be completed, along with the approval of the CRE code on ethnic monitoring, which awaits the approval of the Secretary of State for Employment, and the need for safeguards against misuse of the information, as recommended by the Select Committee on Employment? Will he assure the House that he is receiving the full support not only of the unions but of all communities such as those in Leeds and Leicester, where community relations have been remarkably good, although the ethnic minorities are very large?

Mr. Hayhoe: I assure the hon. and learned Gentleman that the work carried out in the Leeds survey followed consultation with the unions and was carried out in cooperation with them and with their full support. The code of practice issued by the Commission for Racial Equality is a matter for my right hon. Friend the Secretary of State for Employment, who hopes to announce his decision on

the matter soon. I agree with what the hon. and learned Gentleman said about the necessity to safeguard the confidentiality of information collected as a result of ethnic surveys and to ensure that it is not improperly used.

Mr. Cohen: I am pleased to hear the Minister's reply. Will the Government take note of the experience of the city of Leeds, which has adjusted itself to absorb immigrant communities—Irish, Jewish, Italian, Central European and Asian—and which has had no problems? I hope that as a result of the inquiry conducted by the Minister, his colleagues and the Department, other British cities will learn from the experience of Leeds to absorb those communities without serious problems.

Mr. Hayhoe: The hon. Gentleman's supplementary question goes somewhat wide of the survey of civil servants in Leeds, but I am delighted to hear what he has said and I am grateful to all in Leeds who made the carrying out of this survey so effective.

Mr. Tilley: Does the Minister agree that the high participation rate shown in volume I of the report shows that it is feasible for widespread ethnic monitoring to take place throughout the Civil Service? How soon will the Minister be having meetings with the unions to ensure that the successes of Leeds can be repeated throughout the country?

Mr. Hayhoe: As I explained in the answer to the main question, we are awaiting the second part of the survey, which, I hope the hon. Gentleman will agree, is an important element in it. It would be wise to await decisions and considerations of what should be done in the future until we have the full information.

Council of Agriculture Ministers

The Minister of Agriculture, Fisheries and Food (Mr. Peter Walker): With permission, Mr. Speaker, I should like to make a statement on the meeting of the Council of Agriculture Ministers on 17 and 18 January in Brussels. I represented the United Kingdom, together with my right hon. Friend the Minister of State.
The Council had its first discussion upon the Commission's price proposals for 1983ߝ84; proposals that recommend an average of 4·4 per cent. increases in farm gate prices, which for British agriculture would work out at 4·1 per cent.
A diversity of views was expressed by member States, the majority of whom sought higher increases than those proposed by the Commission in view of the projected 9 per cent. rate of inflation for the Community as a whole.
The British Government expressed the view that this was a time for price restraint, particularly for those commodities in structural surplus.
The proposals will now be referred to the special committee on agriculture and the Council of Ministers will resume its discussions at future meetings.
The Council agreed to an extension for a further month of the regulation that enables New Zealand to export butter to Britain in accordance with the 1983 quotas, agreed by the Council at its meeting last October.
The French and Irish Governments retained their reserve on the ratification of this agreement, stating that they were linking their ratification with an examination of the manner in which the Soviet Union was being treated in the tendering for butter stocks. The United Kingdom Government, supported by other Governments, the Commission and the Presidency, made it quite clear that the New Zealand quotas of butter, as agreed last October, will be maintained.

Mr. Norman Buchan: I recognise that this is a very interim statement.
This may be a useful opportunity for the Minister to make it clear that there will be no restriction in relation to any other trade-off for the full import of New Zealand butter. That has been agreed and is supported by the whole House, and we shall not tolerate any other trade-off for reneging on that agreement.
What does the phrase mean about the French and Irish Governments
linking their ratification with an examination of the manner in which the Soviet Union was being treated in the tendering for butter stocks"?
Who will be examining it? Does it mean merely the Irish and the French, or will the Council or the Commission become involved? What will they be examining? Is there any explanation of what they are looking for, and if so, are they looking for some other type of trade-off? When are they likely to report on it?
I am pleased to see that at long last the right hon. Gentleman is recognising that this is a time for price restraints. However, does the phrase in the statement about price restraint mean that the Government are reverting to the policy that they pledged in their manifesto for the last general election, that there would be no increase in price for those commodities in surplus production? If the right hon. Gentleman is sticking to that, the Labour Party will back him on it.
Is the right hon. Gentleman clear that there must be no overruling this time of the British position in relation to the majority votes? The Labour Party would back the right hon. Gentleman on that. If this is pushed to the uttermost and these demands for something equivalent to 9 per cent. inflation are argued in terms of prices by our European partners, I trust that the right hon. Gentleman will oppose that as much as possible, to the extent, if necessary, of using his veto at the end of the day.

Mr. Walker: I welcome the remarks of the hon. Member for Renfrewshire, West (Mr. Buchan) about butter. I can categorically state that this has been agreed by all member countries. There is no way in which we would accept any restraint upon the quotas agreed for New Zealand butter, and there is no question of trading anything else off for it. We have the support of the Presidency, of the Commission and of the other member states, with the exception of France and Ireland.
As for the tendering arrangements affecting the Soviet Union, the Soviet Union has been as free as other countries to tender under these arrangements and has failed to do so. This might be disappointing to the French, who, we gather, would have been happy to export substantial amounts of butter to the Soviet Union, and whose agriculture Minister was in Moscow some time ago. It is a fair tendering system, and the Commission made that perfectly clear yesterday. However, the Soviet Union failed to tender.
It is a question not of anybody else examining the system, but purely of the Irish and the French saying that they feel that there is a bias against the Soviet Union in the system. It was made clear by the Commission that that was not so. The French Minister changed her tone on the second day of the Council from what it had been on the first day.
On the general question of price restraint, one of the major items in surplus during the period of this Government was milk, for which price-fixings have meant in real terms a 17 per cent. reduction on the price inherited from our predecessors. I am afraid, as the hon. Gentleman I hope recognises, that even with a 17 per cent. reduction over the four price reviews for which this Government have been responsible, there has not been a reduction in production. There is a tendency, if the price is restrained, for people to have more cows, and production is, if anything slightly increased.
The 9 per cent. that I mentioned in the statement refers to the rate of inflation in Europe. In fairness, other than comments by perhaps the Greeks and Italians on one or two Mediterranean commodities, no such high figure has been suggested. The figure suggested by one or two other countries was in line with what certain agriculture organisations have suggested, which is about 1 or 2 per cent. above what the Commission expected.
With regard to the Luxembourg compromise, we adhere to the view that it remains, and has an important role which we have a right to exercise in any matter of national interest. I noted that after it was breached on the previous occasion, two of the member Governments who breached it immediately issued a declaration saying that from now on they would adhere to it. I trust that they will.

Mr. Geraint Howells: Does the Minister believe that the pitifully low increases proposed today will


satisfy the financial needs of agriculture in Britain? Will it stem depopulation of the land? How much have the costs of production gone up in the past 12 months?

Mr. Walker: I am pleased to say that in 1982, partly because of good weather conditions, there has been a recovery from the drop in real farm incomes that took place between 1978 and 1981. That has been good for the economy as a whole because it has meant an increase in investment in the construction and machinery industries, which I welcome.
We have the benefit of high standards of productivity in British agriculture, and our application of technology and plant and animal breeding is such that each year there is an improvement in productivity that assists in tackling problems. I expect that to continue. I hope, too, that improvements in marketing of British produce will help. It is reasonable, therefore, to have tolerably restrained price increases this year.

Mr. Anthony Nelson: Does my right hon. Friend agree that it is not in the long-term interests of farmers, let alone British consumers, to have an excessive price settlement agreed at the end of March, and that, conversely, as my right hon. Friend has recognised, too low a price settlement or a freezing may result in overproduction as farmers try to catch up on their income? Therefore, does my right hon. Friend accept that many of us feel that he has it absolutely right and hope that he will stick to his guns?

Mr. Walker: I am very grateful to my hon. Friend. It is worth pointing out that during the past three or four years we have, in comparison with most of our competitors, done very well in agriculture. It is also a period when the record on low food price increases has been remarkable. I am glad to say that, for example, food price increases during the lifetime of this Government have been well below half the rate of those under the previous Government.

Several hon. Members: rose——

Mr. Speaker: Order. This is an Opposition day. We have a ten-minute Bill before we come to the privilege motion. I shall call hon. Members who have been rising in their places and then move on to the ten-minute Bill.

Mrs. Elaine Kellett-Bowman: The Minister said in his statement that milk production had not fallen. If, during the negotiations or subsequent ones, it is decided to follow the admirable example of the Christmas butter subsidy, and give an extra subsidy to citizens of the Community, will my right hon. Friend do his best to make sure that sufficient time is given for distribution arrangements, so that no hold-ups occur, as on the last occasion?

Mr. Walker: The arrangements for the Christmas butter subsidy were a bad way of encouraging consumption. That was a matter for the Commission. The British Government expressed the view that it would be better to increase generally the butter subsidy over a longer period than to have a once-for-all injection. I am sure that that is right. That is why I am glad that in the lifetime of the Government we have succeeded in doubling the general butter subsidy.

Mr. Thomas Torney: I am pleased that the Minister has dug his heels in over New Zealand

butter and farm prices, but does he agree that there is no long-term solution for the common agricultural policy problems while we remain members of the Common Market? Does he agree that the real solution to the problem is to get out of the Common Market?

Mr. Walker: I suppose that, more than any other hon. Member, I am acquainted with the detail, difficulties and problems of the CAP. Most other parts of the world would like to have had the stability of prices and guarantee of supply that Western Europe has enjoyed.

Mr. Robert Maclennan: Does the Minister accept that the National Farmers Union will regard his attitude to prices with dismay and that it will find it hard to understand how he was prepared to accept institutional price increases last year of 10·4 per cent. while this year he is apparently boggling at the Commission's proposal of 4·1 per cent.? As farm incomes have not recovered to the mid-1970s level, will the Minister think carefully before bringing the modest farming recovery that took place last year to a juddering halt?

Mr. Walker: The hon. Gentleman has made an interesting statement on behalf of the alliance. The NFU will be interested in statements from his partners in the alliance about the re-rating of agricultural land. Any dismay that the NFU has about me is as nothing compared with its dismay about the ignorance of the Social Democratic Party about agricultural matters.

Mr. David Myles: Will my right hon. Friend state what agricultural commodities do not have direct price support under the proposals, such as turkey meat, which could be bought last year at the same price in cash terms as 30 years ago?

Mr. Walker: There have been considerable changes in the poultry industry over the past 30 years. The consumer has benefited. A large range of foodstuffs are unaffected by CAP price fixings although most British foodstuffs are—for example, cereal prices affect the poultry industry.

Mr. John Home Robertson: Does the Minister accept that British farming is not the main culprit for structural surpluses of agricultural commodities? Will he therefore take steps to ensure that British farming does not suffer unduly, if at all, from penalties for excess production?

Mr. Walker: Yes, Sir. That is why I am pleased to say that in the lifetime of the Government we have improved the share of the home market produced by British farmers so that this year our balance of payments will be £1 billion better than it would have been otherwise.

Mr. Teddy Taylor: Although I welcome, unlike the Social Democratic Party, the Minister's attempts to curb excessive food price rises, does he agree that even that restraint will not solve the problem of the growing structural surpluses in the Common Market, particularly now that the Americans are matching the dumping of food in the Middle East and elsewhere? Did any new thoughts emerge from the meeting about what to do with those large and growing surpluses? What would the Government do if the Council of Ministers overruled him and forced through a large price rise, as it did last year?

Mr. Walker: As I have said, I believe that the Luxembourg compromise will prevail in the countries that used it last year, so they will adhere to it this year. With his views on Europe, my hon. Friend will have noted the big reduction in the major surpluses in the European Community. All I can say is that a pricing policy which would diminish returns to a level where European farmers came out of production would result in a swift rise in world prices. The comparison with world prices that some people use is artificial and wrong.

Mr. David Stoddart: Is the right hon. Gentleman aware that I have a considerable interest in New Zealand butter as we pack a good proportion of Anchor butter in Swindon and that for that reason I support the tough and forthright attitude that he has taken with the French? However, as so often in the past, tough and forthright attitudes come to naught, as happened in the price review last year. Therefore, will the Minister give the absolute assurance that under all circumstances we shall import 89,000 tonnes of New Zealand butter this year? How long will that agreement run?

Mr. Walker: The figure is 87,000 tonnes. It is this year. I give the assurance that the hon. Gentleman requires.

Mr. Michael Brown: Does my right hon. Friend accept that this is probably one of the best farm price reviews that has come from the Commission in the past few years? What does he think will be the likely food price increase once the final negotiations have been concluded?

Mr. Walker: The relationship between the food price increases and the farm price increases is not substantial. Food prices this year have continued to increase less than

the retail price index. The increase has been less than 5 per cent. whereas last year there was an increase of over 10 per cent. in farmgate prices. We have a whole range of disagreements on individual items. It will be possible to calculate the impact when we have looked at the increases for each item.

Mr. Eric Deakins: Does the Minister regard the Commission's price proposals as constituting price restraint? Does he regard it as an important national interest that we should get price restraint on products in structural surplus? If those price proposals are adopted, what will be the effect on Britain's contribution to the Community budget?

Mr. Walker: The last point depends totally on the method of calculation of our budget contribution for the coming year. That has yet to be negotiated. I can only say—I know that it will bring great joy to the hon. Gentleman—that the proportion of the CAP budget that benefits British agriculture has doubled during the lifetime of the Government. Therefore, we are obtaining much more benefit than our predecessors managed to obtain from the system. Part of that is directed towards the consumer in the doubling of the butter subsidy that the Government have achieved. Price restraint varies from one commodity to another. It depends upon productivity. In some areas a policy of price restraint is illustrated. For example, if one takes the price proposals combined with the suggestions on green currency proposals for a number of countries, the proposed price increases are way below the rates of inflation and increased input costs in those countries. It varies from one commodity to another. I repeat that I am happy to compare the Government's record in the past few years on food prices with that of any of our Socialist predecessors.

Rent (Agriculture) (Scotland)

Mr. Gavin Strang: I beg to move,
That leave be given to bring in a Bill to provide security of tenure for tenants of agricultural tied cottages in Scotland.
A farm worker and his family in Scotland have no legal right to a roof over their heads. If the farm worker ceases to work on the farm, through ill health or retirement or as a result of a dispute with the farmer, the farmer has a right to secure vacant possession of the cottage. It is true that he must go to court to obtain an eviction, but in practice it is automatic. The farmer's motives are irrelevant. The farmer's intentions for the cottage are also irrelevant—whether he needs it for another farm worker, wants to sell it, let it as a second home or allow it to stand empty. It is an elementary act of social justice that that fundamental insecurity should be ended.
The purpose of the Bill is to give tenants of agricultural tied cottages broadly the same security of tenure as other tenants under the Rent Acts. It often makes sense for a farm worker to live in a cottage on a farm. In remote parts of Scotland there is little alternative for the shepherd or other workers but to live on a farm.
When a farm worker ceases to work on a farm, he may no longer wish to continue living in his tied cottage. He may wish to move into alternative accommodation in a nearby village provided by the council. The Bill will impose on local housing authorities the obligation to provide alternative accommodation where there is a genuine need for a cottage for an incoming worker.
The farmer would no longer be able to secure vacant possession automatically. The only arguments relevant to securing possession would be those related to the housing needs of the ex-worker and his family.
The Rent (Agriculture) Act 1976 provides security of tenure for farm workers and their families in England and Wales. As with all reforms of this nature, that measure was opposed by the Conservative party and by the National Farmers Union. The present position has worked well. It

has been accepted by the National Farmers Union, and the Government have acknowledged that there is no need to alter it.
During the proceedings on the legislation, there were many scare stories about the implications for the practical working of our farms and the efficiency of British agriculture.
Where the agricultural dwelling house advisory committee recommends that a tied cottage is needed for an incoming worker, an obligation is put on the local authority to provide alternative accommodation. The legislation has worked very well. It abolished the insecurity and at the same time enabled a sensible arrangement to be reached between farm workers and farmers.
It may be argued that the legislation is not necessary because evictions from tied cottages are now relatively rare in Scotland. Evictions are the tip of the iceberg. The fundamental issue is that the farm worker and his family, or his widow, have no security to the roof over their heads. The question is not whether farmers are good or bad landlords. Most farmers are pretty good landlords. The issue is that the right of a farm worker and his family, or his widow, to the roof over their heads should not depend upon the benevolence of a good employer. That is why the Labour party, when it attains office, is committed to abolishing the insecurity of the agricultural tied cottage in Scotland. I hope this House will give leave to bring in this measure as an elementary act of social justice.

Question put and agreed to.

Bill ordered to be brought in by Mr. Gavin Strang, Miss Joan Maynard, Mr. John Home Robertson, Mr. Dennis Canavan, Mr. George Foulkes, Mr. William McKelvey, Mr. Martin O'Neill and Mr. Norman Buchan.

RENT (AGRICULTURE) (SCOTLAND)

Mr. Gavin Strang accordingly presented a Bill to provide security for tenants of agricultural tied cottages in Scotland: And the same was read the First time; and ordered to be read a Second time upon Friday 18 March and to be printed. [Bill 57.]

Privilege

Mr. Speaker: Before I call the hon. Member for Hackney, South and Shoreditch (Mr. Brown) I must tell the House that I have received a letter from Mr. Ken Livingstone, headed
Members Lobby, The County Hall, London
I propose to read this letter to the House.
Dear Mr. Speaker,
I understand from the media that some members of Parliament have raised an issue of privilege. I am enclosing a copy of the minutes of the GLC's Policy Committee which met on 12 January 1983 and decided:—
Agenda Item L(iv) Capital Allocation 1983/84
'…that lists be prepared of projects which are at risk in each constituency and that these be provided to MPs, who would be asked if they were willing to support an increased capital allocation for the GLC. It would also be made clear that decisions on which projects would proceed would not be based on how MPs voted but on the needs of London.'
You may also find helpful the press coverage of our press conference which preceded the Policy Committee (whose minute I refer to above) for although most papers give contradictory and confusing quotes both the Daily Telegraph and the Newsline both quote accurately the comment of John McDonnell:—
'…support us and we will implement this in your area, and your refusal to support our programme will mean this will not go ahead.'
You may also have seen an unusually accurate article in the Evening Standard which says:—
'Mr. Livingstone now claims that people "got the wrong idea" over remarks made by councillors. He said: "Of course the GLC will continue to allocate resources on the basis of need. To do otherwise would be to penalise the working people of London.'
I hope this letter will resolve an otherwise confused situation. I also hope that you will not mind my having given copies of this letter to the media as I am sure you will understand that there has been considerable media interest in our response to the issue raised in the House this afternoon.
Yours sincerely,
Ken Livingstone".

Mr. Ronald W. Brown: I beg to move
That the matter of the complaint be referred to the Committee of privileges.
The purpose of my motion is to call attention to words spoken by Mr. Kenneth Livingstone, leader of the Greater London Council, and Mr. John McDonnell, chairman of the finance and general purposes committee of that body, indicating an intention to restrict the provision of new servuices in the constituencies of any London Member of the House who failed to support the provisions of a forthcoming Greater London Council money Bill.
I thank you, Mr. Speaker, for your courtesy in sending me a copy of the letter you have just read out, which I received this afternoon.
I had intended originally not to discuss the merits of this case as that is not the purpose of my asking it to be referred to the Committee of Privileges. I am not involved in the alleged threat because I have never voted against a money Bill since I have been in the House. I have no intention of voting against a money Bill. It is for local government to make and defend its own case.
I believe that it is in the interests of Parliament that hon. Members should never be put in a position such as this by

anybody. There was a precedent in 1981 when an employer attempted to put pressure on a Member of Parliament. I submit that no one is in a position to offer any Member of Parliament money to vote in favour of a Bill, which is bribery, or to threaten to take action against him if he fails to vote in a certain way, which is blackmail. It is wrong to put pressure on a Member of Parliament in that way.
The press reports seem to suggest that pressure was being exerted. If the Committee of Privileges could examine this case hon. Members could be safeguarded from such pressure.
After hon. Members have voted, they must stand their corner. If an hon. Member has voted for or against a particular issue, he is subjected to all the criticisms and all the pressures from outside that anybody wishes to place on him. I accept, underline and approve of that behaviour, but the situation is different before the hon. Member votes.
The letter from Mr. Livingstone to you, Mr. Speaker, does have certain features about it and it goes some way towards clarification because it quotes from the agenda item, which was never quoted before. It says:
It would also be made clear that decisions on which projects would proceed would not be based on how MPs voted but on the needs of London.
That was never quoted.
Another quotation which you, Mr. Speaker, also read out, purports to start with the word "support". However, the press report of what was said begins:
We will be saying you either support us".
Those words are left our of the quotation given to you, Mr. Speaker, by Mr. Livingstone. The words put a different connotation on the point. The suggestion is that we either support the Bill or certain projects will not go ahead and that does not conform with the previous item on the agenda. The two items are incompatible.
Mr. Livingstone could have clarified another quotation which reads:
We will write to every MP in London. We will put forward a positive victimisation policy. We will tell them what will happen if they do not support us.
I do not want to discuss the merits of the case. Your ruling yesterday, Mr. Speaker, leads me to believe that there is a prima facie case for giving precedence to the motion. I believe that it is right for the episode to be examined by the Committee of Privileges. When the Committee has reported to the House we shall be in a position to discuss the matter.

Mr. John Silkin: Yesterday you, Mr. Speaker, explained to us that on the facts as given to you there was a prima facie case that could go to the Committee of Privileges. You did not say that the matter had to go to the Committee because the House would decide. That was yesterday. On the facts as we now know them a different situation has arisen. For that reason I would find it impossible to vote for the motion. I shall vote against it.
The motion is totally incorrect since it calls attention to words allegedly spoken by Mr. Livingstone, which he did not say, and which the hon. Member for Hackney, South and Shoreditch (Mr. Brown) admits he did not say. It refers to Mr. McDonnell, a councillor representing Hayes and Harlington. The Member who represents that area is the hon. Member for Hayes and Harlington (Mr. Sandelson), a distinguished member of the Social


Democratic Party. If he voted against the Bill, Mr. McDonnell would have to penalise himself and his constituents. That would be nonsense, but he would have to do that if this matter were taken seriously. The House has a great deal more important work to do than to bother with this matter.

Mr. Harry Greenway: As a London Member I wish to explain how the issue has affected me in a direct and personal way, which does not involve hearsay. Last Thursday I was invited to take part in a debate with Mr. Boateng of the GLC on a breakfast television trial run. Mr. Boateng put to me, in front of the cameras, what Mr. McDonnell had said. He said that in practical terms Mr. McDonnell had said that if I did not support the GLC money Bill, it was possible zebra crossings, among other things in my constituency for which the GLC has responsibility for erecting—slow though it is in doing so—would be at risk and would not be proceeded with.
I told Mr. Boateng that that was political blackmail against a Conservative Member of Parliament by the Labour GLC and unacceptable. He persisted in saying that that was what the GLC was saying to London Members such as me. A transcript will show that. I reminded Mr. Boateng that kings had fallen before the House of Commons on the question of Supply and that they should be careful. I repeat that warning to the GLC, Mr. McDonnell and anyone else involved.

Mr. Joseph Ashton: The remarks by the hon. Member for Hackney, South and Shoreditch (Mr. Brown) show what a charade and farce this whole business is. I speak as a Member who has been before the Committee of Privileges, so I know what I am talking about.
When an hon. Member is called before the Committee word goes round that if he grovels and apologises and says that it will not happen again he is bound over to be of good behaviour and nothing more is heard. Alternatively, the defendant can decide not to grovel but to go for the publicity and television cameras and take part in the charade.
The Committee of Privileges is the most unfair committee of inquiry in the British Isles today. The onus is put on the defendant to decide whether to make a personal appearance before the Committee. If he decides not to appear he submits his evidence in writing, a long and tedious business. If he decides to go before the Committee he faces top QCs and receives no legal aid or help with the cross-examination. There is no transcript or Hansard report at the end of the trial. The press and public are not admitted. The jury meets every Wednesday afternoon and can come and go as it pleases. It is not necessary for the same jury to be present at the same trial every week. The verdict is announced without the defendant being told.
I was severely censured by a Committee of Privileges when I alleged that MPs were making their services available for hire. Two years later three Members, Mr. Cordle, Reggie Maudling and the hon. Member for Normanton (Mr. Roberts) were found guilty. I was never pardoned. I did not receive an apology in any shape or form. There was no question of an apology.
In Britain we have freedom of speech. Mr. Livingstone was exercising his right to free speech. We have a free press. [Interruption.] Government Members who are shouting should look at the front page of today's Guardian which describes how the Soviet Union is putting Mr. Roy Medvedev on trial for criticising and slandering Soviet politicians. He could face seven years in prison. Will we get to that position here? The nonsense of referring matters to the Committee of Privileges just because someone feels aggrieved and wants to make a political point has gone on for too long.
The Diplock decision on political slander made in the House of Lords on 30 January 1974 states that if statements are made outside in the public interest by people who believe them to be true and believe that they have a duty to the public to say so, the privilege of free speech is not lost.
The GLC has the right to criticise the House of Commons and the right to free speech. It has the right to say what it likes about us. What the GLC advocates is no different from what the Government do when they give big grants to Tory constituencies for farming or defence while penalising steel towns by refusing to help them. The House should reject the charges which are made for political purposes by the hon. Member for Hackney, South and Shoreditch.

Mr. John Wheeler: When bringing the matter to your notice, Mr. Speaker, I was concerned solely with the issue of principle and not of personality. The question for the House is—were threats made against hon. Members to do other than what their conscience or judgment dictates? The House must decide whether the threats were made publicly.
I sent you, Mr. Speaker, copies of the popular press which contained statements showing exactly what occurred. It is a matter of great concern to the House.
In Britain we win political arguments by debate, not by threats. I do not believe that it is right that London Members should be told that if they do not vote in a certain way their constituents will suffer accordingly. That is the issue upon which the House must vote.

Mr. Peter Bottomley: The hon. Member for Bassetlaw (Mr. Ashton) was defending a breach of privilege that has not been determined. The matter should go to the Committee of Privileges, if only to clear up what appears to have been an ambiguity as to whether GLC members were saying, as they apparently now say, that if the House did not supply money that money would not be available for London, or whether, as the reports at the time said and which were apparently not cleared up until the press conference yesterday, there was a suggestion or threat that individual constituencies would be treated differently, and that that would be determined by how the Member of Parliament voted.
I do not believe that we should follow the line of the hon. Member for Bassetlaw and say that this is a breach of privilege that the House should pass over. We should refer the matter to the Committee of Privileges to decide.

Mr. Arthur Lewis: I do not want to discuss the merits or demerits of the issue. Will you, Mr. Speaker, consider the points that arose towards


the end of the statement that you read? I do not have a copy, but no doubt you and the House will recall that you used words to the effect that Mr. Livingstone had said that you would not take it amiss if he informed the media.
Mr. Livingstone ought to know that he should not presume to inform the media of a matter that he knew was in the possession of the House. I am not worried about Mr. Livingstone. I am worried about the principle. This is not the first breach of privilege case. It has happened many times before, but I have never known of any person or organisation against whom complaint has been made writing to Mr. Speaker and, before Mr. Speaker receives the letter, going on the radio and television and telling Mr. Speaker that he was sure that Mr. Speaker would not take it amiss if the media were told.
We should tell everyone—whether the National Front, Mr. Livingstone, the Labour party, the Tory party or anyone else—that, if the matter is in the hands of Mr. Speaker, courtesy, custom and practice are that the will of the House should not be interfered with. Mr. Speaker is the custodian of the will of the House. Mr. Livingstone knew that the letter had been sent, and the matter should have been left there. We should have it made absolutely clear to everyone that when Mr. Speaker has been written to no one——

Mr. Dennis Skinner: Stop grovelling.

Mr. Lewis: Who is grovelling? If the hon. Gentleman had done only half as much for the working class movement as I have, and if he knew my record, he would know that I never grovel to anyone, be it Right, Left or Centre, Chief Whip or no Chief Whip—[Interruption.] I am not grovelling to anyone. Why should I grovel to Mr. Speaker? He is not a man who would accept grovelling. Mr. Speaker has the right to protect the House. The House has the right to decide the issue.
Will you look at this matter, Mr. Speaker, so that all people—whoever they may be—can be advised that, when Mr. Speaker is writtten to, courtesy, custom and practice require that the matter be left until after the House has decided. After the matter has gone to the Committee of Privileges they can say and do as they like. It is a matter of precedence because otherwise there might be prejudice.

Mr. Alexander W. Lyon: In a succession of reports the Committee of Privileges has pointed out that the House should not take itself too seriously. When there appears prima facie to be a breach of privilege it ought not to be taken seriously by the House so that the members of the Committee of Privileges, having had to decide that a breach of privilege took place, should then have to recommend that the House should take no action.
This is a classic such case. No one has been seriously impugned. The freedom of individual Members to vote as they wish has no more been threatened than in any other kind of polemical interchange that takes place between parties throughout the country. On that basis at least, we should not refer this matter to the Committee of Privileges.

The Lord President of the Council and Leader of the House of Commons (Mr. John Biffen): The motion in the name of the hon. Member for Hackney, South and Shoreditch (Mr. Brown) is of course debatable. This

afternoon the House has taken advantage of that to express a number of views. The debate has been enriched by being wide-ranging. It is my job to recall the House to the narrower consideration of whether this matter should be referred to the Committee of Privileges.
As my hon. Friend the Member for Ealing, North (Mr. Greenway) has reminded us, the matter of privilege has been treated traditionally as one of the utmost gravity. The House will also be anxious to place in the balance a sense of realism and proportion in all these affairs. The choice of where that balance lies is one that requires the collective wisdom of the House. It is my task to say that I believe sufficient opinions have already been expressed to enable the House to proceed to that function.

Question put:—

The House divided:— Ayes 203, Noes 162.

Division No. 45]
[4.15 pm


AYES


Adley, Robert
Gorst, John


Alexander, Richard
Gow, Ian


Alison, Rt Hon Michael
Gower, Sir Raymond


Alton, David
Grant, John (Islington C)


Atkins, Robert(Preston N)
Greenway, Harry


Banks, Robert
Grieve, Percy


Bennett, Sir Frederic (T'bay)
Grimond, Rt Hon J.


Benyon, W. (Buckingham)
Grist, Ian


Berry, Hon Anthony
Hamilton, Hon A.


Best, Keith
Hamilton, Michael (Salisbury)


Bevan, David Gilroy
Hampson, Dr Keith


Biggs-Davison, Sir John
Hannam, John


Blackburn, John
Haselhurst, Alan


Boscawen, Hon Robert
Hawkins, Sir Paul


Bottomley, Peter (W'wich W)
Hayhoe, Barney


Bowden, Andrew
Heath, Rt Hon Edward


Braine, Sir Bernard
Heddle, John


Bright, Graham
Henderson, Barry


Brinton, Tim
Higgins, Rt Hon Terence L.


Brittan, Rt. Hon. Leon
Hill, James


Brooke, Hon Peter
Hogg, Hon Douglas (Gr'th'm)


Brotherton, Michael
Holland, Philip (Carlton)


Brown, Michael(Brigg &amp; Sc'n)
Hordern, Peter


Brown, Ronald W. (H'ckn'y S)
Howe, Rt Hon Sir Geoffrey


Buchanan-Smith, Rt. Hon. A.
Howells, Geraint


Budgen, Nick
Hunt, David (Wirral)


Cartwright, John
Hunt, John (Ravensbourne)


Channon, Rt. Hon. Paul
Irvine, RtHon Bryant Godman


Chapman, Sydney
Jenkins, Rt Hon Roy (Hillh'd)


Churchill, W. S.
Jessel, Toby


Clark, Hon A. (Plym'th, S'n)
Johnson Smith, Sir Geoffrey


Clark, Sir W. (Croydon S)
Johnston, Russell (Inverness)


Cockeram, Eric
Jopling, Rt Hon Michael


Cope, John
Kaberry, Sir Donald


Corrie, John
Kellett-Bowman, Mrs Elaine


Costain, Sir Albert
Kershaw, Sir Anthony


Crawshaw, Richard
Kimball, Sir Marcus


Crouch, David
King, Rt Hon Tom


Dickens, Geoffrey
Knight, Mrs Jill


Dorrell, Stephen
Knox, David


du Cann, Rt Hon Edward
Lang, Ian


Dunlop, John
Lawrence, Ivan


Dunn, Robert (Dartford)
Lee, John


Eggar, Tim
Le Marchant, Spencer


Elliott, Sir William
Lennox-Boyd, Hon Mark


Ellis, Tom (Wrexham)
Lewis, Sir Kenneth (Rutland)


Eyre, Reginald
Lloyd, Ian (Havant &amp; W'loo)


Fairgrieve, Sir Russell
Loveridge, John


Faith, Mrs Sheila
Luce, Richard


Farr, John
Lyell, Nicholas


Fletcher, A. (Ed'nb'gh N)
Lyons, Edward (Bradf'd W)


Fox, Marcus
Mabon, Rt Hon Dr J. Dickson


Fraser, Rt Hon Sir Hugh
McCrindle, Robert


Gardiner, George (Reigate)
MacKay, John (Argyll)


Garel-Jones, Tristan
Maclennan, Robert


Gilmour, Rt Hon Sir Ian
McNair-Wilson, P. (New F'st)


Glyn, Dr Alan
McNally, Thomas


Goodlad, Alastair
McQuarrie, Albert






Magee, Bryan
Rost, Peter


Marten, Rt Hon Neil
Rumbold, Mrs A. C. R.


Mather, Carol
Sainsbury, Hon Timothy


Maude, Rt Hon Sir Angus
Shaw, Sir Michael (Scarb')


Mawby, Ray
Shepherd, Richard


Mawhinney, Dr Brian
Silvester, Fred


Maxwell-Hyslop, Robin
Sims, Roger


Meyer, Sir Anthony
Skeet, T. H. H.


Miller, Hal (B'grove)
Speed, Keith


Mills, Iain (Meriden)
Speller, Tony


Mills, Sir Peter (West Devon)
Spence, John


Mitchell, R. C. (Soton Itchen)
Squire, Robin


Moate, Roger
Stanbrook, Ivor


Molyneaux, James
Steel, Rt Hon David


Monro, Sir Hector
Steen, Anthony


Montgomery, Fergus
Stewart, A.(E Renfrewshire)


Morgan, Geraint
Stokes, John


Murphy, Christopher
Taylor, Teddy (S'end E)


Myles, David
Thompson, Donald


Neale, Gerrard
Thorne, Neil (Ilford South)


Nelson, Anthony
Townend, John (Bridlington)


Neubert, Michael
Townsend, Cyril D, (B'heath)


Newton, Tony
Trippier, David


Owen, Rt Hon Dr David
Viggers, Peter


Page, John (Harrow, West)
Wainwright, R.(Colne V)


Page, Richard (SW Herts)
Wakeham, John


Parris, Matthew
Waller, Gary


Pawsey, James
Watson, John


Pitt, William Henry
Wellbeloved, James


Pollock, Alexander
Wells, Bowen


Porter, Barry
Wells, John (Maidstone)


Powell, Rt Hon J.E. (S Down)
Wheeler, John


Prentice, Rt Hon Reg
Whitney, Raymond


Price, Sir David (Eastleigh)
Wilkinson, John


Prior, Rt Hon James
Williams, D.(Montgomery)


Proctor, K. Harvey
Williams, Rt Hon Mrs(Crosby)


Rees-Davies, W. R.
Winterton, Nicholas


Renton, Tim
Younger, Rt Hon George


Rhodes James, Robert



Rhys Williams, Sir Brandon
Tellers for the Ayes:


Ridley, Hon Nicholas
Mr. John Roper and


Rippon, Rt Hon Geoffrey
Mr. A. J. Beith.


Ross, Stephen (Isle of Wight)



NOES


Allaun, Frank
Douglas, Dick


Archer, Rt Hon Peter
Dubs, Alfred


Ashton, Joe
Dunwoody, Hon Mrs G.


Atkinson, N.(H'gey,)
Eastham, Ken


Barnett, Guy (Greenwich)
Edwards, R. (Whampt'n S E)


Beaumont-Dark, Anthony
Ellis, R. (NE D'bysh're)


Benn, Rt Hon Tony
Ennals, Rt Hon David


Bennett, Andrew(St'kp't N)
Evans, loan (Aberdare)


Bottomley, Rt Hon A.(M'b'ro)
Evans, John (Newton)


Bray, Dr Jeremy
Flannery, Martin


Brown, Hugh D. (Provan)
Foot, Rt Hon Michael


Brown, R. C. (N'castle W)
Foster, Derek


Buchan, Norman
Foulkes, George


Campbell-Savours, Dale
Fraser, J. (Lamb'th, N'w'd)


Canavan, Dennis
Freeson, Rt Hon Reginald


Cant, R. B.
Garrett, John (Norwich S)


Clark, Dr David (S Shields)
Golding, John


Clarke, Thomas(C'b'dge, A'rie)
Graham, Ted


Cocks, Rt Hon M. (B'stol S)
Hamilton, James (Bothwell)


Cohan, Stanley
Hamilton, W. W. (C'tral Fife)


Concannon, Rt Hon J. D.
Hardy, Peter


Cowans, Harry
Harrison, Rt Hon Walter


Cox, T. (W'dsw'th, Toof'g)
Hattersley, Rt Hon Roy


Crowther, Stan
Haynes, Frank


Cryer, Bob
Healey, Rt Hon Denis


Cunliffe, Lawrence
Heffer, Eric S.


Cunningham, Dr J. (W'h'n)
Hogg, N. (E Dunb't'nshire)


Dalyell, Tam
Holland, S. (L'b'th, Vauxh'll)


Davis, Clinton (Hackney C)
Home Robertson, John


Deakins, Eric
Homewood, William


Dean, Joseph (Leeds West)
Hooley, Frank


Dewar, Donald
Hoyle, Douglas


Dixon, Donald
Hughes, Mark (Durham)


Dobson, Frank
Hughes, Robert (Aberdeen N)


Dormand, Jack
Hughes, Roy (Newport)





Jay, Rt Hon Douglas
Richardson, Jo


John, Brynmor
Roberts, Albert (Normanton)


Johnson, James (Hull West)
Roberts, Allan (Bootle)


Jones, Rt Hon Alec (Rh'dda)
Roberts, Gwilym (Cannock)


Kaufman, Rt Hon Gerald
Robertson, George


Kerr, Russell
Robinson, G. (Coventry NW)


Kinnock, Neil
Ross, Ernest (Dundee West)


Lambie, David
Sheerman, Barry


Leighton, Ronald
Sheldon, Rt Hon R.


Lestor, Miss Joan
Shore, Rt Hon Peter


Litherland, Robert
Silkin, Rt Hon J. (Deptford)


Lofthouse, Geoffrey
Silverman, Julius


Lyon, Alexander (York)
Skinner, Dennis


McCartney, Hugh
Smith, Rt Hon J. (N Lanark)


McDonald, Dr Oonagh
Snape, Peter


McElhone, Mrs Helen
Soley, Clive


McGuire, Michael (Ince)
Spellar, John Francis (B'ham)


McKay, Allen (Penistone)
Spriggs, Leslie


McKelvey, William
Stallard, A. W.


MacKenzie, Rt Hon Gregor
Stoddart, David


McNamara, Kevin
Stott, Roger


Marshall, D(G'gow S'ton)
Strang, Gavin


Marshall, Dr Edmund (Goole)
Straw, Jack


Marshall, Jim (Leicester S)
Summerskill, Hon Dr Shirley


Martin, M(G'gow S'burn)
Taylor, Mrs Ann (Bolton W)


Mason, Rt Hon Roy
Thorne, Stan (Preston South)


Maxton, John
Torney, Tom


Maynard, Miss Joan
Varley, Rt Hon Eric G.


Meacher, Michael
Wainwright, E.(Dearne V)


Mikardo, Ian
Walker, Rt Hon H.(D'caster)


Millan, Rt Hon Bruce
Wardell, Gareth


Miller, Dr M. S. (E Kilbride)
Watkins, David


Mitchell, Austin (Grimsby)
Weetch, Ken


Morton, George
Welsh, Michael


Moyle, Rt Hon Roland
White, Frank R.


Newens, Stanley
Whitehead, Phillip


O'Neill, Martin
Whitlock, William


Orme, Rt Hon Stanley
Wigley, Dafydd


Palmer, Arthur
Willey, Rt Hon Frederick


Park, George
Williams, Rt Hon A.(S'sea W)


Parker, John
Wilson, William (C'try SE)


Parry, Robert
Winnick, David


Pavitt, Laurie
Woodall, Alec


Pendry, Tom
Woolmer, Kenneth


Powell, Raymond (Ogmore)



Prescott, John
Tellers for the Noes:


Race, Reg
Mr. John Tilley and


Rees, Rt Hon M (Leeds S)
Mr. Nigel Spearing

Question accordingly agreed to.

Resolved,
That the matter of the complaint be referred to the Committee of Privileges.

Mr. Arthur Lewis: On a point of order, Mr. Speaker. You will recollect that when I made my remarks a few moments ago on a matter that has now been disposed of I raised a point that I think has substance. I regret and apologise for the fact that I have not given you notice, but I had no intention of raising the matter at that moment. Therefore, Mr. Speaker, I know that you will not have had time to consider it. However, several hon. Members have come to me since to say that they think that we should ask Mr. Speaker whether at his leisure, when he has had an opportunity to look at what I said in Hansard, he will go into the matter to see whether my point was valid and what action should be taken on the general principle for the future. May I ask you to deal with this matter in whatever way you think best, either as a reply to a point of order or perhaps in a statement if you think that the matter is worthy of that at some future date?

Mr. John Grant: Further to that point of order, Mr. Speaker. When you consider the matter, will you take account of the fact that there are hon.


Members who have quite a different view and who believe that in that respect certainly the House would be taking itself much too seriously if it went up that path?

Mr. Speaker: I am much obliged to the hon. Member for Newham, North-West (Mr. Lewis), who raised the point of order. Not for the first time he has shown a concern about the rights and dignities of the House. I will of course look into the matters that he has raised and will write to him or make a statement in the House.

Opposition Day

[4th Allotted Day]

The Economy

Mr. Peter Shore: I beg to move,
That this House, recognising that a competitive exchange rate is essential for Britain's recovery, condemns the gross mismanagement by the Government of its economic policies, particularly its exchange rate and interest rate policies; believes that these have greatly contributed to the collapse of Britain's industry and to the massive increase in unemployment; and calls upon the Government, as part of a new strategy to get the country back to work, to reverse the recent increase in interest rates and to reduce Britain's vulnerability to speculation by the immediate reimposition of exchange controls.

Mr. Speaker: I have selected the amendment in the name of the Prime Minister.

Mr. Shore: After last week's events it is only natural that in addressing the House I should point my remarks more to the Prime Minister than to her Chancellor. Like all her predecessors, the right hon. Lady is First Lord of the Treasury, but few Prime Ministers have intervened more extensively or taken more direct responsibility, at least until things go wrong, than the present Prime Minister, and few Chancellors have played so subordinate a role as the present incumbent.
While fever raged in the money markets last week, the Chancellor was so invisible and so inert that many of us thought he was spending the Christmas recess in a trappist retreat. Not a word or, in the presence of my right hon. Friend the Member for Leeds, East (Mr. Healey), not a bleat, not a sign of life came from Great George Street, except a daily drip of unattributable briefing for the media. The line was, "Do not blame us, we are only the Government; blame the Opposition instead."
It was left not to the Chancellor of the Exchequer, but to the Paymaster General, who by some happy coincidence is also the chairman of the Conservative party central office—the Prime Minister's chosen man—to break the eerie ministerial silence and to put in public what he believed, had he been able to telephone the Prime Minister in the Falklands or to communicate with the trappist Chancellor of the Exchequer in London, was the Government's general line.
Then on Thursday the Prime Minister returned, and within hours the Chancellor of the Exchequer was dispatched to the microphone and he found his tongue. But it was the Prime Minister, again on Saturday and then in a long interview on "Weekend World" on Sunday morning, who shouldered the task of stating the Government's position and intent. It is on what she had to say that I wish first to focus.
Those who saw it will, I am sure, agree that it was an astonishing and revealing performance and wholly relevant to the debate. In the course of her prolonged exchanges-40 minutes of which were devoted to the economy, covering the exchange rate, interest rates, short-term and long-term economic policies and goals—the word "unemployment" left her lips just once. What did she say about it? She said:
as far as the costs of reducing inflation further are concerned, I think provided wage increases are below the current level of inflation, you need not have more unemployment".


There we have it. In short, if living standards are not held but actually cut, unemployment need not increase. All over Britain the scourge of unemployment has returned.
Three and a half years ago we were told that Labour was not working. Today, having helped to destroy 2¾ million jobs, having reduced the work force to the levels of 1950, having one in seven of our working people on the dole, having turned much of Britain into an industrial wasteland, having blighted the hopes of the young and having brought despair to the over-fifties, the Prime Minister cannot muster one word of concern or compassion. She gives no hint of recognition of the moral and social outrage that is involved. She accepts without question that her goal is not to reduce the 3½ million unemployed now or in the years ahead. In all this the Prime Minister has revealed her own values and her basic philosophy.
Two years ago I drew attention to another equally revealing speech that she delivered in St. Lawrence Jewry in the City when she described inflation as an evil and unemployment as a problem. It is this, of course, that leads her to over-value property and under-value people.
When taxed by Mr. Walden on the issue of maintaining the jobless and providing services for them and their families, the Prime Minister gave it as her view that it was the duty of the state to provide no more than a safety net—an assertion followed by a laudatory outburst on the virtues of private charity, of the Victorian pre-welfare state, of the "benefaction feeling" of the rich, who provided voluntary schools, voluntary hospitals, town halls and, yes, even prisons.

Mr. Dennis Skinner: And soup kitchens.

Mr. Shore: Yes, and soup kitchens.
What a view of the past. What a view for the future and what a threat. This is the moral and intellectual soil in which the notorious Cabinet Think Tank report last September was sown, with all its proposals for reducing pensions, dismantling the National Health Service, introducing school fees and imposing the obligation to repay loans upon recipients of university and higher education.
At the heart of this debate is the economic decline of Britain over which the Government have not merely presided but have so perversely engineered. Among the instruments of deflation that the Government have employed to flatten our economy—increased taxation and cuts in public expenditure—none has had a more malign effect than the Government's interest and exchange rate policies.
I do not think that there can be much argument or dispute that, throughout the period of this Government, we have had a serious over-valuation of the pound. Between May 1979 and January-February 1981 the pound was encouraged to rise to what at the time and in retrospect can be seen as a truly astonishing level. At the peak, in early 1981, the pound had appreciated by no less than 19·3 per cent. against the basket of other currencies and by no less than 16·5 per cent. against the dollar. Did this appreciation affect the increased strength or competitiveness of the British economy? Not at all. It rose because, in the fanatical pursuit of his money supply targets, the Chancellor shoved up the interest rate to 15 to 17 per cent. for a whole year. Capital then flowed into Britain.
Was there competitiveness? The very opposite. Our competitiveness, measured by the International Monetary

Fund's index of relative normalised labour costs, fell by no less than 50 per cent.—a change in magnitude and over a timescale quite without precedent in this century. We all know what happened to industry in the following year. There was a collapse, with unemployment jumping by over 1 million in 12 months.
It was these events that provoked Dr. Otto Emminger, in his evidence to the Select Committee on the Treasury and Civil Service as recently as 25 October 1982, to say:
the pound sterling rose against a group of important currencies on a trade-weighted basis between 1978 and the first quarter of 1981 by 25 per cent. in nominal and by 37 per cent. in real terms.
He went on to remark:
This is by far the most excessive over-valuation which any major currency has experienced in recent monetary history.
Between the peak in early 1981 and the beginning of November 1982 sterling depreciated by 10·4 per cent. against the basket of currencies and by over 30 per cent. against the dollar. Over the same period our relative normalised labour cost dipped from 56 per cent. above its earlier level to 41 per cent. It was this latter figure, this slight improvement, that the Chief Secretary and others triumphantly acclaimed as evidence of greater productiv-ity, greater efficiency and success for the Government's incentive and supply side policies.
As recently as 9 December the Chief Secretary boasted in the House of an increase in competitiveness of some 20 per cent. When I said that it was due surely to the 10 per cent. depreciation of the pound, he claimed that the vast majority of the improvement had nothing to do with the exchange rate. Since then he has written to me to correct himself. In answer to a question put by my hon. Friend the Member for Blackburn (Mr. Straw), he has been forced to concede that 75 per cent. of that modest improvement was due to currency depreciation.
That brings me to the third and most recent phase of the sterling story—the phase that began in early November following the publication of the Chancellor's economic forecast. That showed not only that the long heralded upturn was likely to be at best fragile, if not derisory, but, far more important, that the great benefit of North Sea oil that had provided us with such substantial trade surpluses in 1981 and again, although to a markedly reduced extent, in 1982 was due to vanish in the course of this year. Thus, the Government, in the middle of a most serious slump, when imports are inevitably low and in spite of the £40 billion contribution that North Sea oil has made to the British economy in the past three years, were operating the economy with such crass incompetence that we are heading for a deficit by the end of this year. On top of that, there were much publicised fears, which continue, that oil prices could well fall and are certainly unlikely to rise.
What happened then will be within the recollection of the House. The exchange rate fell. The Chancellor rushed to the House on 18 November to reassure the money markets of the world that all was well and that the Government would maintain, as he put it, firm monetary conditions, and that his policy of allowing the exchange rate to reflect market forces was unchanged. Asked by myself and by my right hon. Friend the Member for Heywood and Royton (Mr. Barnett) for an assurance that this really was his policy and that he would not seek to reverse the market trend by raising interest rates or by seeking to prop up the rate through other means, he replied categorically:


I shall not depart from my policy on the exchange rate … I shall allow it to be regulated by market forces."—[Official Report, 18 Novembr 1982; Vol. 32, c. 418.]
Of course, he did not so allow it. He did just the opposite. Ten days later, the commercial banks were permitted to raise their interest rates by a full 1 per cent. Then, throughout December, as we learnt when the gold and dollar reserves were published on 5 January, no less than £500 million was drawn from the reserves by the Bank of England to prop up the rate. It was then, of course, that the markets began to panic. The Chancellor was nowhere to be seen. On 10 January the second folly was committed when the Bank of England failed to prevent the commercial banks putting up their interest rates yet again by a full 1 per cent.
In eight weeks, there has been a two per cent. increase in bank rates, a depreciation of sterling by 12 per cent. and a loss to the reserves, taking November and December together, of $1 billion. Of course, the Chancellor would like to find some excuse. After all, that has been the Government's style since they came to office. In 1979ߝ80, the shooting up of inflation to 22 per cent. at an annual rate was due not to his doubling of VAT or to his other price increase measures, but to inherited pay settlements. The collapse of competitiveness was due not to his interest rate and money supply policies—17 per cent. at the peak—but to irresponsible pay claims. The appalling rise in unemployment was due not to the lethal combination of his massive increase in the tax burden, his cuts in public expenditure and his high exchange rate, but to the international recession.
So it goes on. The Chancellor has refused to acknowledge, let alone face, the disasters that his policies have inflicted on the British economy and people. He has been stripped by events of all credibility on the crucial matter of the much vaunted and long heralded upturn in the British economy. Only last May, the Chief Secretary to the Treasury was seeing signs of recovery all around him. Driven to accept that the one tiny "success"—I use inverted commas—that he might still be able to claim is a reduction in the rate of inflation, the Chancellor and the Prime Minister have doggedly resisted any change in the exchange rate, however necessary they have known it to be.
If change has come, it is in the judgment of domestic and international opinion and markets. If the judgment is that the Chancellor has failed and the absurdities of his monetarism have been rumbled, it must be the Opposition, with all their vast command over events, who are to blame. It is pathetic. I do not usually quote journals. I should like, however, to invite the Chancellor to read the current issue of The Economist with its direct and truthful statement that
the principal reason for sterling's fall this week was simply that it was over-valued.
If the Chancellor wishes to know the view abroad, he should read the January bulletin of the Morgan Guarantee Trust Company of New York which states that
over the first three quarters of 1982, there was no further recovery in competitiveness"—
referring to the United Kingdom—
thus the real exchange rate remained crippling for many British firms.

Even the Chancellor must surely have read the successive pleas of the CBI in pre-Budget submissions. In February 1981 the CBI stated—its words were prophetic—that
unless the exchange rate comes down there is a danger that companies will be forced to withdraw from markets on a large scale and to dispose of plant and equipment, management, skilled labour and sales organisations. Equally important, they will not be able to invest in the up-to-date capacity, research and development needed to meet intensified competition a few years hence. The CBI therefore calls for a declaration that the Government understands the need for a lower exchange rate and will seek to achieve it
A year later, in February 1982, the CBI was saying that
with present exchange rates, even with no rise in United Kingdom unit labour costs, it would take five years to bring labour cost competitiveness back to the 1975 level. To improve competitiveness, the success of businesses in controlling their labour costs ought to be backed up by further falls in sterling, particularly against European currencies.
As recently as 16 December the CBI published its preliminary survey of the industrial opinion of its members under the heading:
Fall in pound will benefit output and profits.
The survey stated:
Industry's output is likely to benefit significantly from the depreciation of sterling through higher exports and some improvement in domestic sales as firms are able to compete more successfully against imports.
I do not apologise for concentrating on the exchange rate. A realistic exchange rate is not a sovereign cure for all our ills, but it is a pre-condition for recovery. Everyone knows why. An over-valued exchange rate is simply a tax on Britain's exports and, at the same time, a subsidy to foreign importers. It is a self-inflicted wound—one that we are no longer strong enough to bear. There has been only one other period this century when we have punished ourselves with a similar folly. That was in 1925 when we fixed sterling against gold at its 1914 parity. A year later, we had a general strike and a major recession.

Mr. Geoffrey Rippon: What does the right hon. Gentleman think would be an appropriate exchange rate today for the pound against the dollar? Is he still asking for a 30 per cent. devaluation, or is it only 15 per cent. now?

Mr. Shore: I shall come precisely to these exchange rate questions including the detailed ones. I shall put them and make my point within the framework of asking questions myself, because both the Chancellor and I, in a sense, have to deal with them. These will include some of the questions I mentioned in a speech at the weekend intended for the Prime Minister, together with some additional ones. I hope that the Chancellor will answer them during his speech. Is he aware that the pound, after he had pushed it up by 19 per cent. in his first period of office, has depreciated, in the two years since January 1981, by just on 22 per cent.? Has the right hon. and learned Gentleman, in the Prime Minister's words last Sunday, been totally irresponsible—or simply income-petent? Has he noticed that the rate of inflation has not increased but has fallen during this period? Does he believe that the most recent fall in the exchange rate—the 12 to 13 per cent. that has occurred in the past two months—is beneficial or harmful to Britain?
Before he answers that question, the Chancellor should remember what was said when Mr. Brian Walden asked


the Prime Minister whether she regarded the recent fall in the value of the pound as having been a bad thing. What did the Prime Minister say? She said:
you cannot hold what is a fundamentally wrong value of your currency in relation to someone else's performance … so I am not surprised at that change because it goes to the fundamental thing, the underlying industrial performance.
Did the Chancellor note the reply that was given during Question Time on Monday by his hon. Friend the Minister for Industry and Information Technology:
The recent sharp drop in the value of sterling—it has dropped against the deutschmark and the French franc by about 12 per cent. in 10 weeks and by about 19 per cent. against the yen—will improve the competitive position of many British manufacturing firms that export."—[Official Report, 17 January 1983; Vol. 35, c. 10.]
If the Chancellor still thinks that a 12 to 13 per cent. depreciation is harmful, is it his purpose to regain the 13 per cent.? If so, how does he intend to do it?
If the Chancellor believes that the exchange rate movement is beneficial, does he consider that the attacks that the Prime Minister, his colleagues and he have launched on the City and on the Labour party recently are just so much electoral humbug? Does he intend to maintain his publicly stated stance of leaving the exchange rate to be determined by the market, or does he intend to respond to the next flurry by pushing up interest rates yet again?
As there is no reason to believe that Britain's productivity is rising or will rise faster than that of its competitors, what is the right hon. and learned Gentleman's policy for restoring the still substantial loss in our international competitiveness? Is not that policy the barren, cruel and strife-ridden course of attempting to enforce not pay moderation but continuing real cuts in the wages, salaries and standards of living of our fellow countrymen?

Mr. J. Enoch Powell: Will the right hon. Gentleman clear up one point? He referred to the disastrous decision in 1925. It is certainly seen in retrospect to have been disastrous to fix the value of the pound sterling. Does he agree that those disasters would have been largely avoided if the pound sterling had fixed its value in the market instead of being permanently and deliberately kept rigid by Government?

Mr. Shore: I am certain that Britain benefited enormously in 1931 when we severed the link with gold. I would not go as far as the right hon. Gentleman in arguing that in all circumstances it is better to have a completely floating exchange rate system rather than a sound one of international guidance and regulation. That is where the right hon. Gentleman and I differ.
In the light of experience, does the Chancellor agree that it was a crass error to abolish all controls on the movement of capital and domestic savings out of Britain? Is he aware that the exodus of capital has been £10 billion a year since 1980? Is he not ashamed that the total capital investment in manufacturing industry in his own country is now far smaller than the flow of British money overseas? Does the Chancellor agree that, as we are now utterly defenceless against speculation, he has a bounden duty to restore the small but effective apparatus of control that was introduced by Neville Chamberlain in 1939 and was sustained by Sir Winston Churchill, Harold Macmillan, Sir Alec Douglas-Home and the right hon. Member for Sidcup (Mr. Heath)?

Mr. Tim Eggar: Will the right hon. Gentleman explain how exchange controls assisted the Labour Government in 1976? What did they do that the IMF did not have to do for them?

Mr. Shore: No one will claim that exchange controls are an iron-clad system. If the hon. Gentleman is serious about the matter, he should examine the net export of capital from Britain between 1974 and 1979 and during the period following the abolition of exchange controls. There is no comparison.
What has the Chancellor to say about yesterday's publication, which appears in this morning's papers, of the index of industrial production? Those figures show that in November industrial production as a whole, and manufacturing output within it, fell to its lowest level yet—manufacturing output being no less than 3 per cent. down on the miserable level of 12 months ago.
There should be no doubt where the Opposition stand. We believe that the central objective of national economic policy is to create wealth, to expand output and to reduce unemployment. We believe that those objectives can be achieved only by policies of expanding demand, achieving competitiveness and far-reaching measures at company and industry level to restore the shattered supply side of the British economy.
We believe that not only was the exchange rate adjustment inevitable, but that, if the opportunity it offers is used, it will be of great benefit to Britain. It is perverse and wrong to attempt to prop up an uncompetitive rate by raising interest rates.
We intend that interest and exchange rates should serve the interests of our industry and people and that they should not be determined by exploded theories about the paramount importance of the money supply. We shall reintroduce exchange control and see to it that the savings of the British people are used to strengthen the economy of the country to which we all belong and from the prosperity of which individual prosperity is, in the end, derived.

The Chancellor of the Exchequer (Sir Geoffrey Howe): I beg to move, to leave out from "House" to the end of the Question and to add instead thereof:
'notes that Government spending and borrowing are firmly under control and that inflation in the United Kingdom fell more in 1982 than in any other major country; rejects the reimposition of exchange controls and welcomes Her Majesty's Government's determination to maintain policies needed to combat inflation, and hence encourage growth and employment on a secure and sustainable basis.'
The right hon. Member for Stepney and Poplar (Mr. Shore) was curiously coy about answering the question that my right hon. and learned Friend the Member for Hexham (Mr. Rippon) asked him. Throughout his speech, he showed how, ever since he published the programme for recovery of 23 November on behalf of his party, he has tried to dissociate himself from its natural implications.
The press and everyone else who studied what the right hon. Gentleman said and wrote concluded that he was then prescribing a devaluation of the pound sterling by 30 per cent. So, at the time, did the right hon. Gentleman. In an interview on radio with Sir Robin Day the right hon. Gentleman reasserted what was plain from his document—that the only realistic way for Britain to recover was to bring about a realistic exchange rate. He


talked specifically about a 15 per cent. devaluation in the first year and another 15 per cent. devaluation in the following one.
That is how the right hon. Gentleman's programme was interpreted. He notably failed, when presenting a rather guarded form of his prescription today, to answer the key question that he will face if he achieves that devaluation. He had nothing to say about the relationship that he would advocate between devaluation on that scale—supposing that he could achieve it—and the movement in pay and earnings that would accompany it. We would surely be entitled to conclude that his prescription for a devaluation of 30 per cent. was likely, on his analysis, to have a significant impact on inflation. We would be entitled to ask within the question—it is important that he answers it—what prescription he would then offer in relation to pay alongside such a devaluation if he could achieve it.

Mr. Shore: Before the right hon. and learned Gentleman invites me to answer those questions, will he answer my question about what the implications would be for both prices and incomes policies of his depreciation of 12 per cent. during the past two months?

Sir Geoffrey Howe: The right hon. Gentleman, having——

Mr. Shore: Answer the question.

Sir Geoffrey Howe: Perhaps the right hon. Member for Stepney and Poplar will allow me to get beyond the first four words of my reply before interrupting. The right hon. Gentleman delivered a positive fusillade of questions in his speech. I had hardly begun to address the House when he leapt to his feet to ask another question. I shall address myself to his questions in due course.
If the right hon. Gentleman is serious in proposing a 30 per cent. devaluation of the pound sterling, that poses the most serious accompanying question. What does he wish to happen to wages alongside that change? His speech—[HON. MEMBERS: "Answer."] I shall make my speech in my own way and answer the questions when it is appropriate to do so. The curious thing about the presentation of the right hon. Gentleman's case—not only this afternoon but throughout recent months—is that he appears to be inviting the House to believe at least three contradictory propositions. He would have it believe that until November of last year the level and stability of sterling at that time was in itself bad, and that a major fall was therefore desirable. Yet he comes before the House today seeking to argue alongside that that the fall that has since taken place, although well short of his prescription, is nevertheless the signal for some economic crisis, which justifies his motion.
The right hon. Gentleman argues that the Government should have prevented the market from raising interest rates in November and again this month. There is a particular effrontery about that charge because interest rates stand 5 per cent. lower than in the autumn of 1981. They stand undoubtedly lower than they would have had the Government not pursued a consistent policy of holding down their spending and borrowing programme. They stand massively lower than they would if the right hon. Gentleman ever had the opportunity to introduce his foolish policies.

Mr. Denis Healey: Does the right hon. and learned Gentleman agree that real interest rates in relation to inflation are higher than they were in 1981?

Sir Geoffrey Howe: The right hon. Gentleman knows well that during the conditions—[HON. MEMBERS: "Answer the question."] The right hon. Gentleman has returned to an economic debate following a long absence, and must contain his impatience and refrain from uttering "Answer the question" after the first four words of my reply.
Real interest rates are high, and have been high in recent times around the world. That is because of the high uncertainty that still persists about the pace at which the world is making progress against inflation. I wish to take this opportunity to draw the attention of the House to those features that are of importance to our present economic position.
The picture painted by the right hon. Member for Stepney and Poplar was, as usual, wildly distorted and selective. Government spending and borrowing are under control and on target, and will remain so. Public expenditure plans for 1983ߝ84, published in the autumn statement, show a reduction in public spending in cost terms and as a proportion of gross domestic product compared with the plans for 1982ߝ83. Spending in the current year is likely to be below the planned figure and so, too, is borrowing. In the autumn statement we indicated that the public sector borrowing requirement this year was likely to be £0·5 billion below the Red Book estimate of £9·5 billion. Present indications are that the reduction on the Red Book estimate may be rather greater than that. The Government deficit as a percentage of GDP is, and will continue to be, one of the lowest among industrialised countries.
Monetary policy is also on course. Since February, the start of the current target period, all the main measures are within their target ranges of eight to 12 per cent. and fiscal and monetary discipline are demonstrably bringing results. During the past year inflation has been falling throughout the industrialised world but nowhere has it fallen faster than in the United Kingdom.
At the time of my Budget statement I suggested that we might hope to see inflation down to nine per cent. by the end of 1982. In my autumn statement I spoke of 6½ per cent. It is now plain that both those forecasts erred on the side of caution. I suspect that the December figure will prove to have been below six per cent., compared to 10 per cent. at the end of 1981. The November figure was already lower than for a decade, and only a quarter of the level that inflation reached when the Labour party was last in office.
Of course, sterling's recent fall will have some effect on future inflation levels, but, as I shall explain in a moment, not nearly as much as some appear to think, and much less than the Leader of the Opposition appears to hope. The Government's determination to bring down the rate of inflation is undiminished. Progress in recent months has been faster than was forecast, and may in consequence be rather slower in the months ahead, but we shall continue to experience the benefits of sound financial policies.
With falling inflation we have also seen improving efficiency and more common sense on wages and


productivity. Productivity in the United Kingdom is up by 13 or 14 per cent. since the end of 1980, and is rising faster than among our partners in continental Europe.
Unit labour costs are now rising by only about 5½ per cent. a year—below the rate in most of our major competitor countries. They need to come down further, but the House should welcome the solid progrees that has been made.
Exports have held up better than many expected, and we continue to run a substantial current account surplus. That is another area where the autumn forecast is proving over-cautious. While the nation maintains a responsible approach to pay bargaining—and settlements need to come down still further—we can hope to maintain our share of a world market that should expand again in 1983, after falling in 1982.
Of course, it takes time for all the results of sound policies to come through. If there were a short-cut route, identifiable in any country, consistent with sound policies, to reduce the current tragically high unemployment figures, the Government would be the first to take it. But experience demonstrates that there is not, and it is only by pursuing sound policies that we can hope to reverse the upward trend in unemployment that has lasted for so long in this country, and which is manifest—and the House cannot escape this disagreeable fact—throughout the industrialised world.
Unemployment is more than 10 per cent. in the United States and Canada, as well as here. In Germany the figure has doubled in three years, stands at more than 2 million, and is rising faster than here. When the right hon. Gentleman pretends that the problem of unemployment is ours alone, and that an easy solution is on offer, he does the unemployed a grave disservice.
Only by continuing to deal with the deep-seated malaise in our economy, by continuing—as he would agree—to work for improved competitiveness, so that we pay our way in the world, and by continuing the battle against inflation, can we offer a sustainable prospect of higher future employment.
The November industrial production figures are disappointing, but the autumn statement foresaw a fall in the second half of 1982. The prospect for 1983 is still one of modest recovery in world trading activity, and some improvement in United Kingdom manufacturing output as a result of the improvement that we have already seen in the underlying competitive capacity of our manufacturing industry.
If we look beyond our shores, we see that in the past two years industrial production in the major OECD countries has fallen by 6 per cent. whereas in this country it has risen by 2 per cent. In the same period manufacturing production in Canada and the United States of America fell by 14 per cent. and 10 per cent., but in the United Kingdom, on a consistent basis, by only 2 per cent. Of course the fall here started earlier, but the long-standing weakness of our economy was far greater than that of any other. OECD experts now expect output in this country to grow slightly faster in 1983 than the average of the other major European economies. In condemning a rise in output of only 0·5 per cent. in the United Kingdom last year the right hon. Gentleman would do well to remember that output for the whole OECD area is estimated by the OECD to have fallen by 0·5 per cent. during that period.

Mr. Jack Straw: The Chancellor is raping statistics with the figures that he has quoted. During the period of this Government none of the major seven Western industrialised nations has suffered a greater decline in industrial production than the United Kingdom. Between the middle of 1979 and the middle of 1982 each of our major industrial competitors showed some growth in gross domestic product. Only Britain showed an absolute slump in national wealth. Only in Britain was national wealth destroyed.

Sir Geoffrey Howe: Only Britain had accumulated such problems of declining competitiveness—problems to which the Labour party was properly ready to draw attention when in office. Only in this country were two or three times as many people working in production as could have produced output on terms competitive with other countries. When this country entered the international recession its economy was suffering from more longstanding faults than that of any other country. It was bound to suffer sooner and more substantially than any other country.
It is equally true, however, that output has been falling in this way in almost every industrialised country. Our problems have an international background. That is one of the reasons why I attach so much importance to the part that I shall have to play in the weeks immediately ahead as chairman of the interim committee of the International Monetary Fund, and why I totally reject the suggestion in the amendment of the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) that there is anything "narrowly nationalist" in the Government's approach to economic issues. The right hon. Gentleman may choose to take that view, but my election as chairman suggests that other Governments do not.

Mr. Healey: Second time of asking. The right hon. and learned Gentleman was blackballed the first time.

Sir Geoffrey Howe: The right hon. Member for Leeds, East (Mr. Healey) can always be relied upon to make a cheap and unworthy point.
The immediate tasks for the interim committee are to enhance the authority and the resources of the international financial institutions so that they can provide support, under suitably firm conditions, for the worst affected debtor countries—mainly, but by no means exclusively, in the developing world. That was one of the principal items on the agenda of the meeting yesterday in Paris, which I attended, of the Finance Ministers and bank governors of the Group of Ten industrial countries. I should like to report briefly to the House on the proceedings of that meeting.
Reviewing the world economic outlook, we saw the prospect in 1983—in varying degrees in different countries—of building on the progress made in reducing inflation and interest rates to cultivate the opportunity for sustainable recovery of activity and employment. In that context, the importance of maintaining sound monetary and fiscal policies was emphasised.
We were particularly concerned about the threats to recovery posed by the prevalence of large sovereign debt problems—another part of the unhappy legacy of the inflationary 1970s. We agreed on the need for close cooperation between the IMF, debtor countries, creditor countries and the world banking system. The Group of Ten countries were able to agree on an important contribution


that we could make at this stage towards strengthening the resources of the IMF for handling such debt problems. We agreed, subject to legislative approval, to enlarge the so-called general arrangements to borrow by increasing the potential credit available from 6·4 billion special drawing rights to 17 billion special drawing rights—that is about $19 billion—and making it available to finance support for other countries as well as Group of Ten members. I am placing a copy of the communiqué in the Library.
I am sure that the House will welcome this important step by the world's leading industrial countries which I regard as a valuable contribution to the wider arrangements to reinforce IMF resources, which I hope will be achieved at the IMF interim committee meeting that I shall be chairing in Washington on 10 and 11 February.
The central point of the speech of the right hon. Member for Stepney and Poplar concerned recent movements in the sterling exchange rate and his views about domestic interest rates. In considering these movements, it is important to bear in mind that the Government's financial and monetary policies are being maintained, that our commitment to sound money should not be in doubt, and that for the reasons that I have given the financial position is demonstrably good. That is why the inflation prospect remains good.
The fall in sterling of more than 10 per cent. in effective terms since October, however, deserves further examination. The first point from which there can be no escape is that irresponsible policy statements by the Labour party have not helped the situation. Indeed, the extent to which the right hon. Gentleman sought to qualify and withdraw from those statements makes that clear. Some people in the market place, however few, have begun to hedge against the possibility, however remote, that those capable of such statements might some day have to exercise the responsibilities of office. I hope that the right hon. Gentleman and his friends will in future weigh their words more carefully, because Oppositions, too, have responsibilities—even those destined to remain per-manently in Opposition.
Of course, that is not the whole story.

Mr. Douglas Jay: Will the Chancellor answer this simple question? Do the Government welcome the fall in the sterling exchange rate in the past few weeks?

Sir Geoffrey Howe: I shall deal with that point in explaining and setting out our views on that issue. In recent months there has been a period of turbulence in all the world's exchange markets. A general currency realignment has been taking place. Since the beginning of November the yen has strengthened against sterling by some 21 per cent. and the deutschmark by 12 per cent. Against the dollar, the change has been about 6 per cent. The deutschmark and the yen have also been rising against other currencies. There is nothing surprising about that. Indeed, it was long expected, given the underlying strength of the German and Japanese economies and their improving trade balances. A further factor has been uncertainty about world oil prices and what OPEC policies for the future may be.
Such periods of turbulence obviously tend to create a sometimes understandable nostalgia for the old and, in

retrospect, simpler regime of fixed exchange rates and the Bretton Woods system. But the very factors that create the disturbance are precisely those that make a return to fixed rates impractical, especially for a major international currency such as sterling, which cannot be immune from strong market pressures.
The amendment of the right hon. Member for Hillhead shows that his nostalgia takes the form of urging sterling's early membership of the EMS exchange rate arrangement. I appreciate that that is a seriously argued case that deserves examination. I make two points about it. First, we should all like to see a return to greater currency stability. That was agreed as a desirable objective at last year's Versailles summit. It was also agreed, however, that the way to such stability must be through greater convergence between the world's main economies, both in policies and in economic circumstances, and particularly through closer convergence towards lower and more stable inflation. There is no short cut or substitute for that.
Secondly, sterling and the deutschmark are internationally held and traded on a far greater scale than other EMS currencies and sterling's petrocurrency status means that world events can cause sharp movements in the sterling-deutschmark rate. I have to say that there is little in recent events to suggest that the conditions yet exist in which sterling's full membership of the EMS margins arrangement would constitute a sensible step either for Britain or for the system as a whole.
One role for national authorities in the type of situation which has obtained worldwide since the autumn is to try to smooth sharp fluctuations and maintain orderly market conditions. That was, of course, done in this country, in December, as it has been done before and as it would be done again if the need were to arise in the face of sharp movements in either direction. But no authorities could or should try to stand in the way of currency movements that are reflecting underlying economic factors. It would not make sense for the United Kingdom or even the United States authorities to try to order the yen and the deutschmark not to appreciate. Such a course would be hardly less implausible than that which the Leader of the Opposition has quite wrongly imputed to the Government, with his suggestion that for much of 1982 we contrived, in some magical fashion, to keep sterling artificially high in order to enjoy an inflation benefit. This is not, of course, to say that the Government can be indifferent to exchange rate movements, because they are important for the economy, for inflation, and for industry. The Government have long made it clear that the exchange rate is taken into account, alongside the monetary aggregates, in assessing monetary conditions, and in assessing the Government's attitude to interest rates.
The disturbance in the markets around the turn of the year did, as I have said, owe something to fears, however unjustified, that the Opposition might conceivably be called upon by the electorate before long to put their inflationary policies into effect. And in the turbulent market conditions last week, the markets took interest rates higher. To have resisted that move could have been interpreted as a weakening of the Government's resolve.
We have shown that there was no question of any lack of resolve—[HON. MEMBERS: "What resolve?"]—our resolve to maintain economic and monetary policies consistent with effective policies against inflation and consistent with the maintenance of sound money. There


can be no doubt that there is no reason for a further rise in interest rates now. If the exchange rate were to fall further, such a fall could well be only temporary, and those tempted to speculate on that could come to regret their action.

Mr. Healey: rose——

Sir Geoffrey Howe: I shall not give way. I have given way many times.
The underlying inflation prospect is still good. It has been suggested that a depreciation of the type that has taken place might, if it persists, add 2 to 3 per cent. to the RPI after 12 to 18 months. For a number of reasons that is much too pessimistic a view.
First, a fall in the exchange rate will have a lasting effect on inflation only if it results from unsound money. That would, of course, be the case if the policies advocated by the right hon. Member for Stepney and Poplar were put into practice. But, as I have repeatedly said, the pursuit of policies for sound money will ensure no lasting effect. Secondly, to the extent that the depreciation of sterling discounted in advance a possible fall in the price of oil, its effect on domestic inflation could prove broadly neutral.
Thirdly, commodity prices generally remain weak.
Fourthly, competition for export markets makes it likely that exporters to this country will try to maintain the sterling price of their product by reducing their profit margins.
So right hon. and hon. Members on the Labour Benches are wrong to suggest that the recent change in the exchange rate heralds a significant reversal of progress against inflation. The country knows that it wants to achieve further progress in that direction. It appreciates the progress that has been made and provided the gains in competitiveness—those already registered and those resulting from depreciation—are not dissipated, provided we see continuing moderation in the level of pay settlements, that progress should be maintained.
The right hon. Member for Stepney and Poplar sees the resolving of our competitiveness as a simple matter. He appears to see at the heart of his programme for the improvement of competitiveness a substantial fall in the exchange rate. Let me give him this rather grisly assurance. A fall in the exchange rate is about the only thing the election of a Labour Government could guarantee, and on a scale far greater, and far more rapid, than his 30 per cent. The right hon. Gentleman's problem would not be to engineer a fall in sterling, but to stop it. What would be the result if he were able to secure that policy for the destruction of the exchange rate of the pound? Has he forgotten that from 1969 to 1976 sterling depreciated by more than a third in effective terms or, to take a narrower period, between February 1975 and November 1976, by 25 per cent?
What happened as a consequence of those changes? Competitiveness scarcely improved at all because costs, especially wage costs, rose to destroy any competitive advantage that might have been secured. That is the importance of the question that I put to him at the outset of my speech. How could he ensure, if he secured devaluation on that scale, that the competitive advantages that he says might follow from it were not instantly destroyed? How could he ensure that history did not repeat itself?
The right hon. Gentleman proffers, in a rather tentative fashion, his so-called national economic assessment, but there is a degree of mystery about what that is meant to imply. The right hon. Member told the Labour Party conference last year a good deal about the national economic assessment. He said:
It is not an incomes policy under another name … not a way of introducing wage restraint by the back door.
Yet, on his analysis, without such restraint, the downward spiral and the loss of competitiveness would still continue. The truth is that today, as ever, the Labour party offers no credible means of delivering that essential component of his managed exchange rate decline, even if he could manage that, which he could not.
The Opposition also say that they share our desire to get interest rates down. Yet again one must ask what evidence they offer that they would will the means as well as the end. Would they, as the Government have been doing, hold down spending and borrowing? Of course not. Their prescription is precisely opposite. What would be the effect on interest rates if the right hon. Gentleman's "Programme for Recovery", a misnomer if ever there was one, were ever put into practice?
In truth, the effect would be incalculable, and so in a sense it is, but one is entitled to consider the scale of what is prescribed and consider the proposals on offer and unveiled by the Labour party last year.
The Labour party says that it would "need" public ownership in electronics, pharmaceuticals, the construction industry and building materials, private road haulage, major ports and forestry and timber. The cost is clearly immense—£10 billion, £20 billion, £30 billion. Who knows? We have no idea. The Labour party proposes to take
a majority stake in all existing and future North Sea oil fields".
What would be the cost of that? Perhaps another £10 billion.
The Labour party wishes to nationalise tenanted agricultural land. [Interruption.] Labour hon. Members may not like to hear about the programmes to which they are committed, but the question that the House and the country wish to have answered is what on earth would happen if the Labour party were elected seeking to promote and secure a fall in the exchange rate, and seeking to do that alongside the very policies to which they are committed, and seeking, if the House can believe it, to secure a lower exchange rate, lower inflation and more growth alongside lower interest rates? The truth is that that is quite incompatible with the vast programmes of public expenditure to which the Labour party is already committed.
I do not understand how, consistent with all the natural economic consequences of those proposals, the right hon. Gentleman has the gall to call for and to offer lower interest rates. Perhaps the money would be available from higher taxes, but he would be offering exactly the opposite there again. He wants to lower value added tax, to increase tax thresholds and to do everything that is totally inconsistent with any rational economic prescription for holding interest rates down and stopping borrowing from going through the roof.
What would all these changes do to the borrowing requirement? What would they do to inflation? What would they do to interest rates or the exchange rate? The right hon. Gentleman, as was pointed out, was foolish enough to believe—indeed to pretend—as he presented the


programme, that this reckless programme of extravagance would deliver economic growth, rising employment and lower inflation. He sought in that respect to enlist the Treasury model in support of his fantasy, but he has done so only by requiring the model to assume the two things that simply could not be assumed—that he would have success in restraining the growth of incomes on a scale that his party has totally failed to secure so far, and that the implementation of his irresponsible programme would have no adverse effect on confidence. We all know that exactly the contrary would be the case. Nothing could be further from the truth than either of those assumptions. When the right hon. Gentleman takes his plans through the model without those assumptions, what we see revealed by another of his equations is inflation soaring to 18 per cent., a current account deficit of up to £25 billion and a plain insight into the fact that the "Shore factor" is a prescription for economic disaster.
I come to the Opposition's final attempt, reflected in the motion, to square the circle of self-contradiction about prescribing the reimposition of exchange controls, the suggestion that this would in some way save them and sterling from the consequences of the policies that they recommend. Did exchange controls have that effect, or any significant effect, when similar policies, although not quite so bizarre ones, were being followed in 1967 and 1976? Of course they did not.
The House knows, and the Opposition must learn, that the growth in trade flows and markets made exchange controls ineffective long before their abolition in October 1979. There can be no question of their reimposition and Labour Members delude themselves if they believe that reimposing them could save them from the consequences of the policies that they currently put forward.
So it is reasonable to conclude that none of the easy answers offered by the Opposition would deliver the goods—not devaluation, not the national economic assessment, not a spending spree on borrowed money with inevitably higher interest rates, and certainly not exchange controls. The good sense of the British people will see through all that as they have already done. They know that such policies will not work, just as they did not work when prescribed before.
Therefore, the markets need not fear that the policies of fiscal and monetary irresponsibility, which so implausibly masquerade as Labour's programme for recovery, will be put into practice. The British people support the Government and the policies to which we are committed. With or without the support of the right hon. Member for Stepney and Poplar and despite the irresponsibility of his prescriptions and damaging statements, we shall keep the country's economy on the responsible road to sustainable recovery. I invite the House to support the amendment.

Mr. J. Enoch Powell: The right hon. Member for Stepney and Poplar (Mr. Shore) complained of the absence, apart from one reference, in the television broadcast of the Prime Minister of any reference to unemployment. However, there was an even more remarkable absentee from both the speeches to which the House has listened this afternoon. It is a factor of the economic scene that is so large and so remarkable that it

dwarfs much of the contemporary debate. Perhaps it is so large that on that very account it escapes observation, or perhaps it is found inconvenient to take account of it by those who are following the beaten track of policies of the past. The factor to which I refer is the huge and continuing current account surplus of the United Kingdom.
The right hon. Member for Stepney and Poplar, as many have done many times in the past three or four years, ventured a prediction that this was about to stop. I do not know whether he or I will still be here at the termination of the period that he proposed for his prediction. Maybe the Labour vote in Stepney and Poplar is as secure as the Unionist vote in Down, South. If so, we shall be able to compare notes at the end of the year, should there be an election in the meantime. Perhaps it would be no bad idea if he and I were to agree upon a minor wager by which we could test the reliability of our forecasts. At least that does not excuse us from taking account of the reality with which we are faced now and which has accompanied us through all the vicissitudes of the past three or four years.
In a period in which industrial output is 20 per cent. down on what it was four years ago, in a period in which there have come to be between 3 million and 3·5 million statistically registered as unemployed, the United Kingdom on its trading and current account has continued to make an enormous and persisting surplus. The rate at which this is running currently is between about £6 billion and £7 billion per annum.
This must be a factor of immense significance which we should not ignore. It appears to be a factor which makes nonsense of many proposals which are put forward, and not only from one side of the House. Those on the Government Front Bench and those in the Conservative party generally place continuing stress upon the importance of an improvement in competitiveness, presumably as calculated to render imports less attractive and exports more attractive. The result of that, if and in so far as it is secured, must be a further increase in the huge surplus on our balance of current payments.
The right hon. Member for Stepney and Poplar has told us that he wants to depress the exchange rate of the pound sterling further still. He wants to do this artificially. He does not want to wait for it to happen in case it should happen—he is a Socialist and a planner. The right hon. Gentleman wants to organise it. He did not, however, mention to the House the method by which such a fall in the exchange rate is arranged; but he does know that the way it is done is by manufacturing large quantities of one's own currency and putting them on the market—a point which supports the view of the Chancellor of the Exchequer that measures to reduce the exchange rate artificially are inherently inflationary in their effect. But let that pass. The right hon. Gentleman wants a more competitive rate for the pound sterling. So he wants to boost still further the already large current surplus on the balance of payments account of the United Kingdom.
Then there is strong pressure and frequent argument in favour of curbing the exports of countries which, to use the current expression, penetrate our market, thereby securing what is called a better balance in our trade with them. Japan has been notable in this context. In so far as we succeed in persuading the Japanese not to sell to us what we want to buy at the price at which we want to buy it, and in so far as we succeed in persuading them to buy from us what they do not want to buy from us at the price at which we offer it to them, the effect of that is bound to


be—it cannot be otherwise—a further increase in the huge current balance of payments surplus which is so staggering a feature, a feature unprecedented in the memory and experience of a whole generation.
The significance of this factor is quite independent of the composition of the account. People are apt to say, "There is a large entry for oil in the account; so ignore it." The component parts of the surplus do not matter. It is still a huge surplus, and a dominant factor in our economy for a reason which should be close to the concerns of both sides of the House, and especially of the right hon. Member for Stepney and Poplar: its counterpart is an equally huge outflow of capital from the United Kingdom. If we are running a surplus on current account of £6 billion or £7 billion a year, we are exporting £6 billion or £7 billion of capital a year from this country.
I do not believe that it can be argued or demonstrated that it could be beneficial to the United Kingdom deliberately to increase that outflow still further. The right hon. Member for Stepney and Poplar had a horrified reference to make to the tremendous outflow of capital from this country. It may be doubted whether even at its present level there is net benefit in this outflow; but to offer us a prescription of which the purpose is to increase the capital outflow still further cannot possibly make sense.
I caught in the speech of the right hon. Member for Stepney and Poplar a hint of the Labour party line that says, "Ah, yes, but this is all the fault of having no exchange controls. The Chancellor has removed the controls and allowed people to exchange sterling for other currencies if they wish to do so and for whatever purposes they desire." The right hon. Gentleman says, "If and when we get the opportunity, we shall not allow any more of that hanky-panky. We will not allow this blood transfusion of capital from the United Kingdom." I thought I caught an aside to that effect from the right hon. Gentleman—that exchange controls will be used to prevent any massive outflow of capital and ensure that we use it to better effect within our own economy. His trouble is that if one stops the outflow of capital, if one destroys the deficit on capital account, the surplus on current account is automatically destroyed too.

Mr. Jay: No.

Mr. Powell: Yes, that must be so. I can differ or agree over many things with the right hon. Gentleman but we cannot disagree that the current account deficit and the capital account surplus are equal and opposite and inseparable concomitants.

Mr. Allan Roberts: Why?

Mr. Powell: I hope the hon. Gentleman will forgive me and spare the House the necessary argumentation but I should be happy to demonstrate that very simple proposition to him later. [Interruption.] I hope that some sections of the House will not tempt me, Mr. Speaker, into prolixity and into starting a seminar that I have not the slightest intention of conducting. Therefore, I will leave as purely a speculative proposition what is a fact of the universe—that, on the balance of payments, the deficit on current account and the surplus on capital account, or vice versa, are complementary and equal.
So if the right hon. Member for Stepney and Poplar intends to use exchange control to extinguish the outflow

of capital, he will extinguish that expenditure of industrial and other effort, that quantity of employment, which is represented by the current surplus on our external trade.

Dr. Jeremy Bray: I question the factual basis of the right hon. Gentleman's argument. He said that the current account is running at a surplus of £6 billion to £7 billion a year. In 1979, the true figure was minus £1 billion, in 1980, it was £2·9 billion, and in 1981 £6·1 billion. In the first 11 months of the past year the figure was £3·8 billion. Although the right hon. Gentleman dismisses forecasts, the Chancellor estimates the figure to be zero next year.

Mr. Powell: We shall see about the "zero next year". When I said that the current account surplus is at present running at such a rate, I was taking the quarter up to last November—a quarter in which one would not have supposed that many of the movements, including movements on the exchanges, would be favourable to that factor. However, if he wishes, the hon. Gentleman may modify the figure; but the fact remains that for this country it is a most remarkable and unprecedented phenomenon to find ourselves with a persisting surplus on our current balance of payments. The phenomenon seems to me to invite us to reconsider our entire approach to the problem of unemployment and to the management of the economy.
Disagreeable though the task is, I shall not shrink from showing what I believe this phenomenon portends. It shows that we cannot engineer ourselves out of our present unemployment or our present discontents by an increased and artificial emphasis on those very industries which, in the past, have contributed the mainstay of our international trade. Still less can we engineer ourselves out of it by artificially manipulating such factors in the equation as the exchange rate. We cannot fudge ourselves out of our difficulties.
We must recognise that, consequent on many changes that have taken place in the world, we face a very different economy, perhaps even a very different society, in this country from that which we have previously envisioned. Our efforts and thoughts should be directed in quite different directions from those that occupy them presently.
We should consider, for instance, how a larger element of one of the greatest forms of wealth—leisure—can be introduced into our society without the damaging effect of its being concentrated in the form of involuntary leisure. We should examine our legislation, including our social security legislation, to see whether there is anything in it that is fossilising an obsolete pattern of work and working life.
We should, furthermore, see our economy as destined to be increasingly a service economy in which more and more of us will be occupied in providing services for one another that the rest of the world cannot provide for us. In an ageing population, a population in which the human needs of those disabled by age or any other kind of disability are increasingly understood and analysed, there is an immense reservoir of demand for the application of effort, thought and talent.
It is in such directions as these that we should be looking. But we should not be asking ourselves what the Government should impose. No Government can foresee the new pattern of our economy and society that will once again absorb the energies of our people. It is a pattern that people will have to find for themselves, but they can best


do so if they are not hindered either by obsolete legislation or by policies that respond to the difficulties of the past and not of the present or by policies, such as many put forward today, that would increase rather than remove the contradictions of our present position.
In this House and in this country, we are invited to contemplate what may be as large an impending revolution for the people of the United Kingdom as the industrial revolution was 150 years ago.

Mr. Edward Heath: I shall be as brief as possible, because I know that many hon. Members wish to speak in the debate. I shall not cover the general ground, because my position is clearly known, especially the emphasis that I put on the undesirable nature of unemployment, which is just as serious as inflation.
In my speech during the debate on the Loyal Address, I asked the Government to say what they believed would change—the general economic movement of this country or that of other countries. In replying to the debate, the Leader of the House said, very openly, that there was no connection between the Government's policies and the expansion of the economy that was required to solve many of our problems. He said it categorically, and I agree. Therefore, it worries me that in the Government's amendment there is still no sign of how they propose to change the economic direction of affairs in Britain.
Of course, the point that the Government emphasised—the reduction in inflation—is to be welcomed. The fact that Government expenditure is under control is also to be welcomed, but that does not necessarily mean that it is at the right level. I was interested to hear the Chancellor's statement that Britain has the smallest proportion of its gross domestic product as a deficit on the budget. However, why should he be especially proud of that?
Britain has a very large public sector—we can argue whether that is desirable or undesirable—and the process of reducing it can be carried on. However, it puts upon the Exchequer the burden of investment for those industries, which the Chancellor will agree has greatly increased under his rule. Therefore, we cannot be expected to be in the same economic position as the United States, which does not have a public sector. That matter must be examined and is an important factor in the reaction of many of those in the world's money markets when they see what is happening to Government expenditure and deficit. I see that the Government Front Bench is already becoming agitated. I hope that Ministers will calm down and consider the matter sensibly, because there is a difference that must be handled carefully.
How can the economy be turned round? The Chancellor said that, at the recent meeting of the Group of Ten, it was agreed that there would be expansion in 1983. In that case, the world's finance Ministers are still kidding themselves in a way that no one else is. Perhaps my right hon. and learned Friend in his reply can tell us about the signs of that expansion in 1983. I congratulate the Chancellor on his appointment as chairman of the interim committee of 20. I welcome it because, as he says, it shows a worldwide vision in the Treasury. If some of his ministerial colleagues in the Treasury do not have worldwide vision, I hope that he will get rid of them as soon as possible.
As to the immediate question about the pound, it is natural that in this debate there has been much politicking and an attempt to blame the Opposition for the change in the sterling rate. I hope that we can abandon that. To attribute to the right hon. Member for Stepney and Poplar (Mr. Shore), who opened the debate with great fluency and skill, and to the Opposition Front Bench or to his party sufficient influence in the world economy to change the level of sterling is disproportionate to their position, as they would be the first to recognise. It also shows a lack of confidence in the survival of the Government through a general election period, which I deprecate. I do not share that lack of confidence.
Those who operate in the money markets are hard-headed. They, the CBI and the Government have been discussing publicly during the past year or 18 months the fact that we are alleged to be 30 per cent. more uncompetitive than the rest of the world. Those people know that perfectly well. They also do not see how, either with ordinary policies or with measures such as those suggested by the right hon. Member for Down, South (Mr. Powell), we can regain 30 per cent. competitiveness in a bearable time unless there is a change in the exchange rate. Therefore, they acted accordingly. They did not act because of the influence of the Opposition, which is well known to be negligible. They acted because they considered the facts and knew that there was no other solution.
The second factor that must be taken into account, which was not allowed for by the right hon. Member for Down, South in his figures that have already been proved to be exaggerated, is the existence of real doubts in the world about the course of oil prices and the impact that that will have on our revenues and on the Treasury. It may be beneficial to us from the point of view of countering inflation still further, but there are real doubts about the matter. That is especially true of the operations of BNOC and the spot market. I understand from those who handle such matters that the next month or two months will be critical.
The third factor that must be taken into account is the Saudi Arabian position, which is that, in the event of world oil prices beginning to fall, Saudi Arabia will be in deficit on its current budget. Of course, Saudi Arabia can call on masses of reserves, but—not only for political but for doctrinaire and religious reasons—it is offensive to the Saudi Arabians not to have a balanced budget. Therefore, they cannot continue their policy of reducing production in order to maintain OPEC prices. If that is the case, we shall be affected both in revenues to the Treasury and in our balance of payments.
A political factor is that the present poor relations between Britain and Saudi Arabia are bound to affect the latter's choice of country to deposit its surpluses. We cannot have it both ways. We cannot try to divorce our economic policy from our foreign policy and we cannot expect to escape the consequences of foreign policy in our economic position. That fact has become more and more plain in more and more parts of the world, and I ask the Government to consider the matter most carefully.
Those are all factors in the depreciation of sterling. However, we return to the basic point that I hope the Government can answer—what do they consider to be a satisfactory position for sterling today in regard to our competitiveness and to the position of our colleagues in the Community and in the United States of America? The


Government have greatly changed their policies during the past two years. They have changed their policies on interest rates and on intervention in the currency markets. Yet they still continue to deny that they are using, or are prepared to use, those weapons. That makes it extremely difficult for the rest of the world to judge how to react to British monetary policy, towards the pound and towards Government policy as a whole.
I suggest to the Chancellor that we would have a much sounder basis for operation if the Government said frankly that they are prepared to use all those weapons and—which is well known—that they are using them now. They must also say that the pure monetarism with which they started is no longer the doctrine to which they adhere. We all know it. Why cannot they say so frankly and have a much more sound basis for their operations?
The international factor has become extraordinarily critical. Perhaps I may be forgiven for saying that, even two years ago in a speech in the House, I forecast what would happen to many of the developing countries unless effective action was taken. It has happened disastrously in Poland, Mexico, Brazil, Argentina and Nigeria and in many smaller countries. We all know of other countries on the list. The scale is enormous and is much greater than we recognised when we gave the warning. There has been no co-ordinated action to handle the matter. It is perhaps more astonishing to learn that the major banks have never had any means of knowing how much each of them was putting into the developing countries or what the total commitments of all the banks would be. The result is that the weakness of the developing countries has proved to be their strength up to this point. We could not possibly face the total collapse of the Western banking system and therefore Governments and international institutions have had to act.
The most recalcitrant of all, the Washington Administration, maintained complete opposition to any help for developing countries until Mexico collapsed. As that country was on its border, it could not ignore it. Therefore, at 8 o'clock in the evening, in a rush operation, sufficient money was brought together to save Mexico from having to announce its total bankruptcy.
These matters have not been solved permanently, as some like to think. They have only been dealt with for a year or 18 months. Year after year, the international organisations, the commercial banks and Governments will have to work out solutions for these countries to maintain their solvency. That is certainly the case as long as world depression lasts.
I have a point about the expectation of the finance Ministers that things will be better in 1983. The best calculations that one has been able to obtain show that the developing countries themselves accumulated a deficit of $95 billion in the past 18 months or two years in running down their reserves. Many are bankrupt, and the others now do not have reserves with which to buy either commodities or manufactured goods. As the demand from the developed world has fallen so far, the developing world is receiving lower and lower prices for the great majority of its commodities. This is continuing.
Therefore, where is growth to come from in 1983? The growth can only start if this deficit is being made up and if the developing world is given the wherewithal to start purchasing from the developed world, our own industrial world. That is why I welcome the decision announced by the Chancellor, that the general agreement on borrowing

was increased from 6·4 billion SDR to 17 billion SDR by the meeting yesterday. That is welcome and I congratulate my right hon. and learned Friend most wholeheartedly on achieving it.
However, the gap between that and the deficiency of the developing world today is still great, and must be about $65 billion. Where will that come from in 1983? This is the task to which I suggest that the Chancellor will have to devote a great deal of his attention as chairman of the 20. If one looks at the possibilities, the movement for increasing the quotas of countries to the International Monetary Fund has at last gathered momentum, but that cannot become effective before 1984.
The arguments about the percentage by which the quotas will be increased is continuing. Some think it should be 40 per cent., some 60 per cent. and France thinks 100 per cent. No doubt there will be a compromise, which will contribute, but not until 1984. Where will the rest of the money come from in 1983?
A further source could be rapid action on special drawing rights. This could contribute considerably to what is required in the developing world, and particularly if the developed countries were prepared to forgo their right to drawing rights and enable them to be used, under the control of the IMF, by the developing countries. That is a proposition that should be considered. Provided that the control is there, it can be effective.
The British played a large part in the creation of the SDRs. A general criticism of them is that they are inflationary. At a time of deep depression, with deficiencies in liquidity, it cannot be inflationary if, under control, one uses SDRs to enable the developing world to maintain its solvency and its demand on the developed world for the materials that we produce. Therefore, I ask the Chancellor to look at this problem from this point of view.

Sir Geoffrey Howe: My right hon. Friend may be grateful to know that the decision to hold the IMF interim committee in February rather than in April has been taken by me specifically to accelerate, if we can, the date of agreement on the enlargement of IMF quotas. At our meeting yesterday, the finance Ministers of the Ten agreed that it would be desirable, if possible, to implement that agreement by the end of 1983. The item of special drawing rights is something else that will have a place on our agenda.

Mr. Heath: I welcome this, and I am glad that the Chancellor brought the meeting forward, and that this has been agreed, although not published. The Chancellor says that it will be effective at the end of 1983, which does not alter my point that it cannot have any effect until 1984. Therefore, we are still faced, for the whole of this year, with a grave deficit of which only part, so far, has been mustered. That is why I am also glad to hear from the Chancellor that the SDRs are no longer taboo but can and will be considered, because they can play an important part.
In his press conference before he left the United States for the Frankfurt meeting, Mr. Donald Regan, the Secretary of the Treasury in the United States, made some very important remarks, one of which was a revelation. He said that there had been no talks so far, and no coordination about the continued bankruptcy of the developing world and the impact on the Western banking


system. It is deplorable that, throughout this period, there have been no talks on an international level, but that is not the point that I wish to emphasise. I emphasise that Mr. Regan gave it as his view that the international organisations must now be reformed in order to cope with the world economy. He said that clearly and firmly, and I agree entirely with him.
The IMF is carrying out part of that reform in that it has, for the first time, taken the lead in arranging packages as it did over Mexico, as it is doing over Brazil, and as it is trying to do for Nigeria and one or two other countries. What Mr. Regan says is true. After 30 years, the IMF and the World Bank need to be reconsidered and reformed from a positive point of view to enable them to do more. Moreover, the world financial system needs to be reorganised in a way that will enable us to have stability such as we had for 25 or 30 years.
That stability has not been mentioned much today. The leader of the SDP may mention it if he catches your eye, Mr. Speaker, because he was responsible for so much of it. However, to help achieve that stability again, it is important for Britain to come into the European monetary system. It is important for us because it gives us a much broader base from which to face speculation on sterling, if it goes above what the Government want, without forcing higher and higher interest rates, which prevent national recovery.
I do not wish to go into all the arguments about this and about what is involved in closer alignment of economic policies and so on, but this is desirable. I am prepared to face closer alignment because the basis of our prosperity for 30 years was consultation and co-ordination of the economic policies of the West. That is what we need to have now. We are suffering from those who think that they can run their own affairs regardless of anybody else.

Mr. Nigel Spearing: The right hon. Gentleman is coming to a point on which there may be an important but legitimate difference of opinion. When a Government attempt to run their internal economy, they may not have control, but they have some option and choice, within limits. Is the right hon. Gentleman therefore content that in joining the EMS those options and that freedom of action would be constrained by virtue of joining that system and its system of political control through banking? The right hon. Gentleman must agree that that control would not exist if the Government concerned were not a member of that system.

Mr. Heath: As the hon. Gentleman says, there is room for a difference of opinion. I differ from him because I believe that the options of the British Government are more and more limited. That is becoming clear. The EMS gives us a broader base on which to operate. It is now also apparent from two years' experience that the EMS is stable and more flexible than the Bretton Woods system ever was. Therefore, it is an advantage to us to be in a stable and flexible system. If we are to have world stability, we must face the fact that we must have an operation in which, in addition to a European area, we can have a dollar area and a yen area until we can come together under the IMF.
It is not always realised that one of the major changes recently has been that the European Community has a GDP that is equal to that of the United States and, secondly, that the part that non-dollar currencies play today in world

financial matters is equal to that of the dollar. That puts on Europe with the EMS, and Japan with the yen, an equal responsibility with the American authorities, with the dollar, for establishing world stability. That must be brought home to those responsible. I hope that the Chancellor of the Exchequer will do so.
When the Secretary of the Treasury in the United States made his statement, we should have seized the ball and run with it in the same way as Ernest Bevin as Foreign Secretary did with General Marshall's single sentence that the Americans would finance the recovery of Europe. Donald Regan's statement is equally important. He is supported by Mr. Shultz, the Secretary of State, a man of immense experience and great wisdom who understands the international situation as well as anyone in the United States today.
My judgment is that if the Secretary of the Treasury and the Secretary of State together are prepared to work for the reform of the international institutions and the international monetary system, they will succeed. I hope to see the British Chancellor of the Exchequer taking the lead with as many of his European colleagues as are prepared to do so in pursuing that matter and saying "We agree. After 30 years a reform of those institutions is required for positive reasons—not to block their activities. We need to create an international financial situation that will allow the expansion of the world economy once again and therefore the recovery of our country." That is the message that I hope the Chancellor will convey. The quicker he does so, the better.

Mr. Roy Jenkins: It may not surprise the House when I say that I agree with a number of the points that were made by the right hon. Member for Sidcup (Mr. Heath). I agree that the Government's excuse that the right hon. Member for Stepney and Poplar (Mr. Shore) was responsible for the slide in the value of the pound is nonsense. There was a much more fundamental change of sentiment. At any rate, the downward movement began before the right hon. Gentleman issued his policy statement in November. As a matter of fact, he was foolish, from his point of view, to announce a 30 per cent. devaluation as his goal. The idea that one can say that and follow a controlled glide path of descent is an extraordinary illusion. If the right hon. Gentleman were in control, he would have a tail spin and would not follow a glide path. None the less, I do not for one moment believe that he is responsible for what has happened in the past week or so.
The right hon. Gentleman made a more powerfully argued case, though it was stronger on criticism than in dealing with the problems involved in his own policy, than the Chancellor of the Exchequer. After listening carefully to the Chancellor, I found it almost impossible to discover what was the Government's attitude to the exchange rate, past changes, the present level and future changes. The only thing that seemed to emerge with any approach to clarity was the implausible proposition that when under him an exchange rate fell in an unplanned way it did not have inflationary consequences, whereas if it fell under anyone else it had disastrous inflationary consequences. Apart from that, no clear point about the exchange rate emerged.
I shall go a little wider and see how from our present position we can achieve greater stability and some


prospect for world growth. I, too, congratulate the Chancellor of the Exchequer on being elected chairman of the interim committee of the Group of Twenty. I am sure that that is an honour, although it is not necessarily an endorsement of all the Government's present policies. Looking at those who occupy international chairs—including myself in the past—one realises that it does not automatically amount to an endorsement of the policies pursued by the Government of the home country. I hope that the right hon. and learned Gentleman will use the opportunity to do something constructive.
Let us be in no doubt that the world is spiralling down into the deepest slump for 50 years and that, on present policies, as broadly pursued around the world, the chances are that it will get worse not better. It is no good the Government taking comfort from how badly other countries are doing. As a matter of fact, the big countries are not doing as badly as we are. They are all doing badly. The idea that there is comfort in that is the most narrow-minded, short-sighted and, as we said in our amendment, nationalist outlook. From the point of view of making debating points, the point is that the worse they do, the worse is the prospect for us and for the whole world.
Deflation and protectionism are breathing upon each other and can turn the situation from being not merely highly undesirable, but deeply menacing to such an extent that within a few years, unless we are able to do something about it, we shall see the great gains of 1948 to 1973 being thrown away. What can be done at present?

Mr. George Foulkes: Before the right hon. Gentleman advances his proposals and suggestions, will he help the House by telling us, so that we know exactly what weight to put on his words, whether, at the convention of the alliance on Thursday, he will be adopted as undisputed leader of the alliance?

Mr. Jenkins: That is the last time that I shall give way to the hon. Gentleman.
What is the Government's present position? They almost always look inward. That is true of other Governments, too. Each country tries to find its own solution. Occasionally it tries to lecture other countries into more restrictive postures at home, particularly those with heavy debts. Nothing can be worse for the whole world than a collapse and further restriction of world markets. On the contrary, this is the moment when it would be both highly desirable and possible for the major trading nations of the world to proclaim a change of course.
The basic cause of the trouble, to some extent since 1973, and more so since 1979, has been two oil crises. There were massive increases in oil prices followed by restrictive monetary policies by Governments to try to contain the inflationary consequences. That has been made substantially worse by wildly fluctuating exchanges.
It is not true, as the Prime Minister is fond of telling us, that exchange markets reflect reality. How could that be so when for the past two years Japanese exports have been flooding the world, yet the yen has been depressed far below its real value until recently? That is not the true position. To a substantial extent, far from trade patterns setting exchange rates, exchange rates have set trade patterns. This has been very damaging. It has certainly damaged the prospects for world trade.
On top of that, there has been the over-extended position of many private banks lending, in itself desirable, to countries that can now hardly meet their debt charges from their total exports.
Conditions are changing. A real window of opportunity is now open, but it may not remain open for very long.
We shall not see a repetition of the oil crisis. It is more likely that there will be a decline, not an increase, in oil prices. In most places around the world, interest rates have temporarily been coming down. There is mounting concern, to a greater extent elsewhere than in this country, about unemployment. There is deep concern in Germany, and there is a growing appreciation in the United States, even in influential sections of the Administration, that it is not desirable to have anti-inflationery policies, whatever the consequences in other areas.—[HON. MEMBERS: "What about employment in Glasgow?"] We should seize the moment for co-ordinated action to try to reverse this decline.
Action is required along three lines. There must be joint expansion among the leading trading nations. A country on its own can do a certain amount—and much more should be done in this country than is being undertaken at the present time—but it is much better and safer if countries can expand together. Otherwise there is the risk of a balance of payments problem with exchange rate and inflationary consequences. Now is the moment at which this could be done. Such an exercise was attempted at the Bonn economic summit in 1978. It was agreed, following some expansionary moves by the United States and the United Kingdom, that Japan would expand by 1·5 per cent. and Germany by 1 per cent. Canada, France and Italy agreed to make moves of their own.
The conventional wisdom is that that exercise was misconceived because it proved abortive for one isolatable reason that is highly unlikely to be repeated—the oil price increase that came six months later. Whatever else happens, that will not be repeated. That lion will not be in the path again. The basic rationale of Bonn was sensible and should be revived. There would be much support throughout the world if that happened. Relatively small concerted changes in the fiscal stances of different countries would make a substantial difference to the GDP of all of them collectively and to levels of unemployment.

The Economic Secretary to the Treasury (Mr. Jock Bruce-Gardyne): The right hon. Gentleman said that the concerted expansion of 1978, following the Bonn summit, was aborted by the single extraneous circumstance of the second oil shock. Was not the earlier period of concerted expansion aborted by the first oil shock? What leads the right hon. Gentleman to think that, there having been two attempts at concerted expansion, each of which was aborted by an oil shock, there would not be a comparable experience on the third occasion?

Mr. Jenkins: I think that most people would agree with me, not with the hon. Gentleman, that it is the state of the world oil market. I am unaware of anybody who thinks that the world oil market is likely to produce major oil price increases in the near future. On the contrary, I believe that prices are likely to come down. I do not believe that this prognosis would be changed by a limited but significant increase in the growth rate of the major countries. I am amazed that such a question should be put from the Treasury Bench.
A much closer approach to monetary stability is also required. I am certain that the wildly fluctuating exchange rates are not representative of reality. They have been the enemies of world trade and international investment to a substantial extent. Consider what has happened to the sterling-dollar exchange rate. In the last four or five years it has gone up from $1·58 to $2·40 and down again to $1·58. That did not represent a real change in competitiveness or trading positions.

Mr. Gordon Wilson: Will the right hon. Gentleman examine the example of Norway? Although being a large oil producer, it has managed to keep inflation under control and has unemployment of 3·4 per cent. compared with unemployment approaching 16 per cent. in Scotland.

Mr. Jenkins: Norway has not coped well with inflation, but it has done very well on unemployment. The measures that I am advocating will help to reduce unemployment in Scotland, as they would elsewhere in the United Kingdom. I have much contact with Scottish opinion as I represent a Scottish constituency. I do not believe that Scotland thinks that its problems can be solved by not looking overseas.
What can sensibly be done about international monetary stability? It is not possible to put the past on its throne again and to recreate Bretton Woods. There is no point in being Utopian. Bretton Woods served the world extraordinarily well for 27 years. At the end of that period, even the power of the United States economy was not sufficient to sustain the solar system that was the essence of Bretton Woods and which it had discharged splendidly over a long period. The system cracked. It is not possible to revert to the same form.
There are variations in the performance and inflation levels of different countries. What can be done? There is now mounting disillusion with freely floating currencies. Few people think that such a system adequately serves the world. We have undoubtedly suffered from too high an exchange rate, as has the dollar more recently. That situation has helped to destroy competitiveness in the United Kingdom. It has exaggerated de-industrialisation. In the United States it has fanned the embers of protectionism that had been relatively dead for a long time. Markets alone cannot do the job.
What can we do short of proclaiming fixed exchange rates, which would not necessarily stick in present circumstances? We can, and should, attempt to create a tripod between the dollar, the yen and the European monetary system. That would be of great advantage to this country, whatever one's views about Europeanism or anti-Europeanism.

Mr. John Maxton: That is protectionism.

Mr. Jenkins: It has nothing to do with protectionism. Had we been in the Community earlier, we would have substantially greater currency stability than we have.
The hon. Member for Newham, South (Mr. Spearing) made an interesting intervention in which he said "But we have freedom to do what we like".

Mr. Spearing: No, I did not.

Mr. Jenkins: I think the hon. Gentleman actually said that we had limited options to do what we like outside but not inside.

Mr. Spearing: That is it.

Mr. Jenkins: In the early days of the EMS, I remember having conversations with two successive Prime Ministers, both of whom assured me that in principle they very much wanted to join the EMS. However, one said, "I am afraid of being locked in at too high a rate, which would inhibit our ability to deal with unemployment." The other said, "I am afraid of being locked in at too low a rate, which would inhibit our ability to deal with inflation." As a result, we did not join. Since then we have had higher unemployment and inflation than almost any country that belongs to the EMS. It is easy to find excuses for not doing things, but we may get a great deal more stability if we are in the EMS.
The tripod that I have suggested should operate on the basis that Governments in charge of the major currencies should endeavour to keep within target zones. The 6 per cent. margins that the lira has within the European monetary system are better in present circumstances than the narrower Bretton Woods margins. Monetary policy should be used to keep within those margins in response to short term ways. I do not believe that any such system that is constructive can resist the long term swell of the ocean, nor do I think that it should try to do so. However, it can iron out many damaging short term fluctuations that in no way represent reality. On that basis, we would have a system that offered a real possibility of achieving greater stability. Buttressing a concerted move to achieve some expansion in the world economy could give us a better chance than we have had for a long time.
If we are to achieve the ripple effect of this expansion from the major trading nations, there must be a greater flow of finance to the developing world. I agree broadly with what has been said on this issue, and I shall not develop my argument at any length. I am glad about what has been done in the IMF, but I believe that there should be a further issue of special drawing rights angled towards the poorer countries. There must also be a development of co-financing schemes between the private banks and the international institutions. There must also be some help with excessive interest payments. Otherwise, there is a great danger that the world banking system could collapse. It is possible to exaggerate that, but it is perhaps even easier to ignore it. At present, it remains a real danger.
To take such an attitude to finance to the Third world is not soft hearted generosity on the part of the industrialised countries. It is enlightened self-interest of exactly the sort that enabled us to get out of the post-war position, such as when the Marshall plan picked Europe up off its back. Not only did that give Europe the greatest period of increased prosperity almost in recorded history, but it gave the United States the greatest increase in prosperity in the history of the world. It also led to the most freely accepted period of American leadership.
That cannot be recreated. The balance has changed. The leadership must now come from both sides of the Atlantic. It is crucial that the European Community and the United States do not allow their trade differences, which are real but containable, to impair the vital political partnership that is now needed.
Those are ways in which we could take real steps forward. The first two proposals would ensure concerted expansion and greater currency stability, and the third would ensure that markets are not blocked by penury.
We have done too well out of interdependence in the past to turn our back on it now in the harsher and more difficult circumstances of today.

Mr. Maxton: Will the right hon. Gentleman give way?

Mr. Jenkins: No, I am just about to finish.
I am sure that those measures are almost the only route by which we can hope to recreate jobs, to give the world the prospect of growth and allow it to escape from the threatening dungeon of protectionism and deflation, which breed one on the other and pose the greatest threat that we are now facing.

Sir Russell Fairgrieve: It is a great honour for me so quickly to follow, after the Front Bench speakers, three experienced parliamentarians. It was a pleasure to listen to what they said. I particularly agree with what was said by my right hon. Friend the Member for Sidcup (Mr. Heath) and the right hon. Member for Glasgow, Hillhead (Mr. Jenkins), not only about the Third world but about their belief that we should have been in the EMS from the beginning.
However, what the right hon. Member for Down, South (Mr. Powell) said was possibly more important, and I should like to remark on it in my short speech. I may not have the right hon. Gentleman's gift of oratory, but I agree entirely with what he said about the need for radical change.
I intend to turn away from the world scene that has been portrayed by these three world statesmen and to concentrate instead on the British economy. The debate has been called for by the Opposition to discuss what they term the economic crisis, so it might be a good idea first to find out whether there is a current economic crisis.
We can use various indicators to measure such a situation—the rate of inflation, consumer spending, interest rates, the level of the stock market, the external value of our currency and the employment position. If those indicators are taken one by one, it will be seen that the Government have an excellent record. The rate of inflation is substantially down and is now running at about only 6 per cent. On consumer spending, we have just been told that the December figures in the High Street, and even now into the January sales, are the highest ever recorded. There is not much sign of an economic crisis there. Interest rates have come down considerably over the last 18 months—another pointer away from the economic crisis—and in the last year the stock market has come up quite a way and is now at a healthy level. I shall mention the exchange rate of the pound shortly.
With the exception of the other indicator of employment, I suggest that to some extent the economic crisis is a figment of hopeful Opposition imagination.
Last year, the Council of Europe had a full debate on this worldwide problem, and experts from every country agreed that even with unemployment in the OECD countries now running at about 32 million, it could rise to above 35 million by the mid-1980s. This is where I very much agree with the right hon. Member for Down, South.
We in the advanced world shall have to look at this problem in a completely different light, because, provided we do not all blow ourselves up there will have to be radical changes in this area.
It is no good continuing to make steel that no one wants, to build ships that no one will sail or even to dig out coal that no one can use. The jobs will come in new industries, such as electronics, and in greater measure in the service industries and activities such as tourism. If we are able to make the wherewithal to preserve our standard of living with fewer working people, leisure must cease to be a dirty word. It must be properly planned and taken advantage of.

Mr. Maxton: If the hon. Gentleman believes so strongly in leisure, why, on Monday evening, did he vote for a rate support grant in Scotland that demanded a cut of 33·3 per cent. by local authorities in leisure and recreation areas?

Sir Russell Fairgrieve: The hon. Gentleman cannot raise his sights to the areas and vistas that I am trying to explain. We shall have to look at schemes for early retirement, different employment patterns of work-sharing and shift work, and all the other areas of human endeavour that were outlined by the right hon. Member for Down, South.
I was amazed when the Shadow Chancellor of the Exchequer said that an incoming Labour Government would reduce unemployment in a parliamentary term from 3 million to 1 million. Since the end of the second world war, 38 years ago, there have been 11 British Administrations, of which six were Labour and five Conservative. Every time a Labour Administration demitted office, unemployment was higher than when they came in. This fact should never be forgotten. Who believes that a future Labour Administration will change that typical Socialist pattern? That also happened to some extent under Tory Administrations because unemployment has been increasing steadily since the end of the second world war. On a couple of occasions, the Tory party was fortunate enough, or some people might say clever enough, not to have higher unemployment at the end of its period of government than at the beginning.
I hesitate to comment upon the Shadow Chancellor's statement that he would devalue the pound by 30 per cent. and what that would do to the economy. Most people have discounted the chance of a Labour Administration in the foreseeable future, or we would have a real economic crisis on our hands.
The current level of the pound is about right for our business and exporting community. Who is to say that that level will be right in 12 months time? It has reached its present level during the past six months, but it is still 20 per cent. above the level at which the Shadow Chancellor threatens to devalue it, with all the dire consequences that that would have.
Apart from the serious problem of unemployment in the developed countries, the economy of this country is in better shape than it has been for years, thanks to the Government. I trust that there will be no change in the path that the Government are pursuing.

Mr. Michael Meacher: The right hon. Member for Down, South (Mr. Powell) made, as always, an interesting contribution. However, on this


occasion I believe that what he said about the speech of my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) was highly misplaced. Since that is central to the Labour party's alternative programme, I want to say something about it. The right hon. Member for Down, South made the point that there is a large current account surplus at present. That is true. He acknowledged also that it is mainly on the oil account. It is a key fact, and one of which in his strictures he did not take account, that the non-oil trade account has been deteriorating fast for some time, is continuing to deteriorate, and on the Treasury forecasts is expected to deteriorate further over the next year. By the end of the year, even net of the surplus on oil, there is expected to be no surplus on the trade account as a whole. That is serious.
The alternative proposed by the right hon. Member for Down, South is that we should rely on a service-oriented economy. Although I do not believe that anyone would wish to deny that the service industries can continue to make an important and growing contribution to our balance of payments, there is no way in which it is possible for the service sector to take advantage of the wide and growing deficit on the trade account that would arise if there were any recovery of manufacturing industry. The right hon. Gentleman should take account of the Labour party's proposals for a further depreciation in the value of the pound although, as my right hon. Friend the Member for Stepney and Poplar said, there is no commitment to the 30 per cent. figure, which is purely an illustrative simulation. However, there is no doubt that we lean in that direction. The Chief Secretary to the Treasury may laugh, but if there has been a worsening in relative unit labour costs since 1975 of about 15 per cent. to 20 per cent., does he or the right hon. Member for Down, South seriously believe that we can grasp back that degree of uncompetitiveness solely by improvements in productivity relative to our competitors, or by improvements in lower relative labour costs? That is the central issue, and it is for that reason that the Opposition believe that it is crucial for some easing of that to take place through a further depreciation of the parity rate.

Mr. David Myles: In what jobs are people to be employed under Labour? What jobs does he envisage appearing to take up our present dreadful unemployment deficit?

Mr. Meacher: I suggest that the hon. Gentleman reads the "Programme for Recovery" published by the Labour party, in which that issue is extensively discussed. If there were an expansion in the economy, despite the improvement in microtechnology that we have seen, there would be ample room for an expansion in the number of jobs in all the traditional sectors where at present we have contracted out of all proportion to what is justified. If the hon. Gentleman doubts that, I suggest that he looks at Japan and California, which have the best records in microtechnology and employment.
After four years' experience of an economic policy that has been pursued relentlessly by the Government, the speculation against the pound within the past week or two and whether the Government have or have not mismanaged the exchange rate are not the fundamental issues. The more important central issue to be considered is whether current economic policies can achieve a

sustainable economic recovery, not whether they have—it is patently obvious that they have not—but whether they can. That is why I believe this episode is such an important sign for the future.
It is true that the recent fall in the pound is an overdue adjustment to the gross overvaluation of the pound that occurred in 1980 and 1981, as was made clear by the governor of the Bundesbank in his evidence to the Treasury and Civil Service Committee. If that straightforward view is taken, the pound should fall further, for the reason that I have already given. Even after a 12 per cent. depreciation of sterling since November, relative unit labour costs have still deteriorated substantially by about 15 per cent. to 20 per cent. since 1975. No realistic improvement in labour costs or increased productivity can possibly bridge such a gap without some further depreciation of the effective exchange rate.
I believe that the markets are saying something much more fundamental than that. They are not simply making an overdue adjustment regarding the past; they are expressing their lack of confidence in the future, not just as to whether current policies are working—it is clear that they are not—but whether they can work. I believe it is with good reason that they form that view. Again, of course there are proximate reasons for a run on the pound, such as falling oil prices, which reduce the pound's attractiveness as a petro-currency. We are all familiar with that.
But there are deeper and more significant calculations determining market sentiment at this time. These are, I think, crucially, that after four years' rigid adherence to strict monetarist-based policies and the biggest collapse of manufacturing that we have seen in 50 years, there are still no signs whatever of any economic recovery. Secondly, not only is unemployment not coming down; inflation is now irrevocably moving upwards. The one jewel in the Prime Minister's crown is now beginning to look distinctly jaded. Thirdly, Treasury forecasts that the balance of payments would do no better over the whole of 1983 than simply break even certainly imply that by the end of the year trade will be substantially in deficit. A Britain that cannot pay its way even when demand is so utterly depressed as it is today is surely a distinctly poor prospect. That is the message that the markets are giving to the people of this country.
I do not think that anyone can say that this classic slump in international confidence is wholly unjustified. On the first point, the Government have never been able to say where a sustained recovery of demand is likely to come from. The latest alibi in the Industry Act forecasts places it in terms of a gradual increase in exports, plus an increase in stock-building. Those are the two factors that are stated in the Government's report. But the former certainly will not be achieved unless there is an improvement in world trade—and there is no sign of that—and the latter is unlikely since manufacturing stocks remain historically high in relation to manufacturing output, even today.
On the key question of inflation, I do not think that it will have escaped the notice of the market that if monetarist doctrine has any validity at all inflation is bound to rise. Two years ago the money stock MTFS target of 6 to 10 per cent. was exceeded by an outturn of 13 per cent. Last year the target was 5 to 9 per cent. and it was exceeded by an outturn of 11·5 per cent. Where the Chancellor gets his ideas of sound money policies from I simply cannot understand.
What this shows, of course, is that it is not the Government's monetary restrictiveness that has brought clown inflation but the fact that Government policies have engineered a classic slump which, as a result, has cut back inflation. That is what has happened. If that is the case, I think that the Government have never managed to give a convincing answer to the rather crucial question of how, if a recovery were to occur, the inflationary spiral is to be prevented from starting all over again.
What was supposed to happen, according to the Government, was that inflation would be squeezed out of the system once and for all before the expansionary surge began again. But there is not a shred of evidence of that. With unemployment at 3·25 million today and still rising, the wholesale and raw material price index is now rising at a rate of 7·5 per cent. a year, and where that index goes the retail price index will follow.
What was also supposed to happen under a monetarist regime, if there ever was any validity in it, was that inflationary expectations would be irretrievably broken, so that in any future expansion the loss of volume at the expense of inflation—what the Government have always said has been the problem in the past—would be irreversibly improved. Yet what do we see? Again, the Industry Act forecast—this is the Government's own statement as to their expectations for the future—is that manufacturing output will recover by only 0·5 per cent. in volume over this next year, while Income Data Services reports at present are showing wage settlements at 7 per cent. and probably rising.
It is this growing erosion of confidence, not only that the Government's policies are not working—I do not think that we need any proof of that—but that they cannot produce a sustained economic recovery, which lies at the heart of last week's debacle. I think that it is this growing realisation that is causing more and more people in this country to look to the alternative, which is the alternative that the Labour party has put forward.
It is fundamentally untrue—I would say that this is the single biggest fallacy in the Government's case—that any expansion of demand by the Government is bound to be unreasonably inflationary. That is what the Government have repeatedly said and it is totally untrue. Simulations that have been done on the Treasury model show that a gradual increase—not a sharp increase but a gradual increase—in public expenditure, a modest further depreciation of the pound and a modest rising tariff on finished manufactures, linked with a significant annual cut in VAT, a similar annual cut in national insurance contributions and the national insurance surcharge and cuts in interest rates, as a combined package—that is important, because they are interlinked—can produce a cut in unemployment. I will not say whether it will be precisely 2 million but it will be a long way in that direction over a five-year period, without inflation at any time during that span of time exceeding 12 per cent., and, indeed, falling by the end of that period to about 7 per cent., which is actually below what is now forecast to be the result of continuing the present policy of persisting with deflation.
That, I believe, is the kind of programme that is desperately needed if we are to get Britain moving again. It will require a new Government. It is because more and more people are coming to the view that the evil of mass unemployment will never come down under the policies

that are being pursued that I believe that, Falklands or no Falklands, the Government's days are numbered and that change cannot come too soon.

Mr. Edward du Cann: My right hon. Friend the Member for Sidcup (Mr. Heath) did the House a great service in broadening the discussion as he did. He was right to remind us that we must take a world view. I thought that he made a superb speech. I was glad that it was so closely followed by the right hon. Member for Glasgow, Hillhead (Mr. Jenkins). I wish to make the same point, but perhaps I can put it in a slightly different way.
In February of last year the Select Committee on the Treasury and Civil Service, as the hon. Members for Oldham (Mr. Meacher), for Motherwell and Wishaw (Dr. Bray) and for Colne Valley (Mr. Wainwright), all of whom are most hard-working and able members of the Committee, know well, began an inquiry into international financing arrangements, Since then we have experienced the sovereign lending crisis and a clear misalignment and volatility of exchange rates not only affecting the pound, about which we are chiefly talking today, but, as has been remarked, the over-valued dollar and the under-valued yen. These matters have made and will continue to make headlines. They have caused worry and confusion, and they are really the main reason for today's debate.
We have taken evidence, written and oral, from academics, business men and central bankers. I would like to say on behalf of the Committee how helpful my right hon. and learned Friend the Chancellor and officials at the Treasury and the Bank of England have been to us in that regard.
On 2 January the Committee visited the United States for a week of discussions. I cannot anticipate the Committee's report. Our work is not finished. I hope that it will be available in the spring. I merely remark that I hope that our Government and the other Governments of the free world are as near conclusions in regard to these matters as, I believe, the Committee is. What is so worrying is that they seem to be given so little thought at present.
Meanwhile, I give my own views. I believe, as my right hon. Friend the Member for Sidcup said, that the world stands on the verge of an economic crisis. The evidence is all around us. Indeed, it shrieks for attention—the obvious recession, the slow-down in world trade, widespread, and rising, unemployment of 32 million in the OECD countries and more than 3 million in this country. This must stop.
There is potential disaster facing the less developed countries, to which reference has also been made this afternoon. There are the problems of debt with huge risks for the banking system and now, inevitably, the pressure for protectionist policies. In this scene our country is vitally affected because of Britain's dependence on world trade and the obvious impact that any interruption to its steady growth must have on our prospects for employment and prosperity.
As the right hon. Member for Down, South (Mr. Powell) said in another context, we are in a new situation that is not fully realised and understood. In any case, in the context of capital mobility internationally, plus the vulnerability of our domestic economy to economic developments in other countries, because of the scale of


our overseas trade relative to gross national products, we are less able by our domestic policies to affect our own economic destiny.
What happens in the world is particularly Britain's concern. The world has a clear choice. We can continue what I believe to be the slide into disaster or we can attempt to lay the foundations for orderly growth. I had hoped that was going to come out of the Versailles summit. It is tragic that the words written in the communiqué apparently meant nothing. My desperate anxiety is that we should make the right decisions and that the United Kingdom should lead in the context that the United States has not yet fully come to terms with the dual role of the dollar on the one hand as the United States domestic currency and, more important by far, on the other as the world's currency of today. I warmly welcome the statement of Dr. Beryl Sprinkel, with whom we had conversations in Washington, that positive steps to this end should be taken forthwith.
The causes of the world recession are not hard to define. In my view, for what that is worth, remedies for them are to hand. They must be taken. To go through them, it is clear that the two oil price shocks, now happily mitigating to some extent, were accommodated by too much borrowing. That delayed a necessary but inescapable adjustment. There has been a huge growth in non-official international capital markets. For example, many hundreds of billions of United States dollars float outside the United States uninvested in the sense that they are not producing goods and services. Thus, there are several United States dollars in various forms outside the United States for every dollar inside.
One must give credit to the commercial banks for the effort they have made in the recycling of petrodollars and other currencies. Yet, in practice, they have run horrendous risks. To take some statistics shortly, about $300 billion are owed by Latin America. The largest nine United States banks have lent 50 per cent. of their capital and reserves to Mexico alone. To get that matter into scale, the total capital of all the 15,000 United States banks is approximately $40 billion. Over 1,500 banks are now being invited, or cajoled, to assist Mexico in debt rescheduling.
Then there are the problems in Africa, in the Communist bloc, and so on. Without going into those in detail, I would just point out that the potential consequences for the banking system and for public confidence in it if something goes wrong, as it still may, are horrific to contemplate. Thanks, however, to the concerted, if belated, action by the world's bankers, disaster has been narrowly averted. Let us make no mistake. This is a crisis, the worst effects of which have only just been kept at bay.
The world is a dangerous place. The collapse of a number of United States banks has been averted, but it has been a close call and the danger may recur. Potential political chaos in any one of the defaulting countries is still a possibility. Anyway, in consequence, the prospects for a recovery in the world economy are deferred somewhat and could easily worsen.
In spite of what is said and written, there is happily no sterling crisis. There never was, and there never need be, since, on any rational assessment, Britain's economy is strong and in not too bad shape. There may be features that

one dislikes—certainly there are features that I dislike—but the balance of payments is strong. Britain's banks are by no means as heavily involved in doubtful overseas loans as are the banks of America. Whatever may have been said by later speakers, the chatter that we had from Labour's Front Bench about devaluation has not helped the situation.
Leaving that and coming back to my main theme, there are two glaring weaknesses in the world banking scene. Both were referred to by my right hon. Friend the Member for Sidcup. The first has been lack of information between bankers about the affairs of the countries to which they lend. I regard that as inexcusable and I hope that the technical committee now established by the bankers will finally put that to rights. The second is the absence of coordinating mechanisms to restrict borrowing to tolerable levels. This is the responsibility of finance Ministers. When my right hon. Friend winds up, I hope he will be able to assure us that work is being done to put that firmly into place.
As to the direction in which we should move, I agree with those who say that we need to look again at our institutions in the modern world, especially the International Monetary Fund. In the first place, I wonder whether the International Monetary Fund should be placed under tighter political command. To expect it to operate in response to directions from more than 100 countries seems absurd. It is, of course, good that there has been an increase in subscriptions. The Chancellor, as chairman of the interim committee, deserves every congratulation for his part in that.
It is right for the moment to use the IMF as an arbiter and disciplinarian so that the commercial banks can come in behind it as may be necessary, but we need to consider whether the IMF in its present form is adequately constituted to deal with the problems of today. The perils are by no means over. There is the risk of a debtors' club, which could impose terms on the lenders in the Keynesian model. The House will remember the example that I have in mind—where one is in a position of strength the more one owes. There is the risk of restrictive regimes imposed by the IMF with the implications for world trade which follow from that. To sum up, the cost of the folly of our unpreparedness is not yet fully counted.
By no means the least of our problems is the breakdown of the Bretton Woods agreement. That is not the cause, but it has certainly resulted in the persistently misaligned exchange rates and the exchange market volatility to which I have referred. It is extraordinary that the United Kingdom has had no declared exchange rate policy or target. I have never understood why that was. If the target is not appropriate this week it can be changed the next, but to have a complete apparent vacuum of policy is incomprehensible.
To put the matter as simply as possible, I should like to lock up the wisest money men and economists in the world and demand that they reappear only when they have a replacement solution. To put it another way, it is essential that a formally accepted international commitment to exchange rate targets should be agreed if stability is to be achieved in future. Certainly it would be difficult of achievement but the problems are vastly less than the dangers of being without it. All our planning is for 1984 or the end of this decade. What is needed is to find solutions more promptly than that.
Reverting to the domestic, tight domestic monetary policies—now somewhat discredited, as we all know, as an exclusive remedy if not as a panacea; they never were and never should have been pretended to be—have not been co-ordinated among nations, especially with the United States. The result is that world purchasing power is less than expected, the recession is more severe than expected and no apparent end is in sight. I take interest rates as one example. There is no greater discouragement to economic activity in the United Kingdom or in any other country than high interest rates. In the United Kingdom, 5 per cent. real interest rates are intolerable. They are at the highest level known in recent history. The sooner thay come down, the better.
The carrying costs of debt to many developing countries are insupportable. All that we do is to impoverish the people who should be our customers. Unless and until we address ourselves directly to the realities of today's monetary systems—their impact on trade, their disadvantages and the restrictive practices that follow in their train—the world will have problems. There is a need for a clear analysis and examination of the world's monetary systems. The world has been slow to react to these problems, which have been evident for some time. One useful result of this debate may be to focus attention in this country on the work that needs to be done internationally. I hope that the United Kingdom will be a leader in this process. The dangers are real and dangerous.
At home, the Government have undoubtedly substantial achievements to their credit—the reduction of inflation, the real increases in productivity and the new realism that is abroad in our land. Make no mistake—we dare not falter in our declared course. Britain's industrial competitiveness reduced by 50 per cent. between 1979 and 1981. Sterling's 12 per cent. devaluation in the past two months hardly compensates for that.
What must be done? We must teach our people that we are living in a new industrial revolution. We must come to terms with it. We must succeed in that environment. That was a point made by the right hon. Member for Down, South.
I cannot and do not accept that, because of world recession, an increase in unemployment in the United Kingdom is inevitable. I deplore the fact that the Government's estimates, contained in the autumn statement, are for an increase of 300,000 this year. I refuse to accept that. So should the House of Commons. So should the Government. The prospect for too many young people and for older people is awful. Like unemployment, the fact that we now have the worst level of manufacturing output for 17 years is also unacceptable.
It is our task to give our people hope. That is our duty. I am sure that it can be done. First, as I hope I have shown is possible, the conditions should be created for growth internationally, chiefly by replacing confusion and doubt with stability. At home, as I shall argue until it is done, there should be a programme and a crusade for national recovery. That, too, is feasible. I beg my right hon. and learned Friend the Chancellor and Ministers at the Treasury to pay some attention to the first report of the Select Committee on the Treasury and Civil Service for this Session dealing with the Government's autumn statement. I refer particularly to paragraph 48, which states:
In previous Reports we have pointed out the falling share of capital expenditure in total public expenditure".

I shall quote the figures for my right hon. and learned Friend the Chief Secretary to the Treasury sitting on the Government Front Bench. In 1976ߝ77, total public fixed investment as a percentage of total public expenditure was 17·7 per cent. The plans, at constant prices, for 1982ߝ83 represent 11·4 per cent. only. The paragraph goes on to state that the estimate in the autumn statement shows that the local authorities in 1982ߝ83 will overspend on current account by £1·5 billion but underspend on capital account by a similar amount. That is a disgrace. The Government should take action. Paragraph 49 states:
Local authority expenditure has in fact displayed a continual tendency to fall as a share of total public expenditure.
Why should these trends not be reversed? We need a substantial capital programme, an explosion and a blitz on capital work. There is no shortage of private finance. There is no need to create inflationary tendencies as a result of doing what we all know needs to be done. There is no shortage of capital for good ideas. Heaven knows, capital expenditure is badly needed physically. All that is required is imagination and determination. I am confident that my colleagues will show both, on the domestic scene and internationally. I hope that they will make a publicly declared new year's resolution to do so.

Mr. Richard Wainwright: It has been valuable and encouraging, at any rate for me, to be present throughout this debate and to listen to all the generous minded and imaginative speeches that have been made. The right hon. Member for Down, South (Mr. Powell) was right on the ball when he reminded the House of the completely new problems that this country faces and to which it is not addressing itself—namely, the consequences of being able to enjoy a surplus on our balance of payments in spite of manufacturing industry being so sorely stricken and still in serious decline. There is a great deal of work to be done in spreading the leisure rather than concentrating the misery on the unemployed.
I touch only briefly on the problem. I have no complete answer. Many of these temporary and peculiar circumstances will disappear when North Sea oil begins to disappear. It is a major problem for a highly complex society to try to adjust the whole pattern of social life for what will perhaps be only a relatively short period so far as we know. I wish that the House could spend more time debating significant problems of this kind. We on the Liberal Benches do not pretend to have any comprehensive answer. It is more important that, in the mood that has prevailed in the House today, suggestions and solutions should be pooled.
It is immensely reassuring to know that hon. Members on both sides—the hon. Member for Oldham, West (Mr. Meacher) was an exception—display a firm determination to resist protectionist measures and pressures and to retain, so far as possible, the open world trading system on which this country depends so greatly.
The debate has exposed the frailty of the Government's position and has shown how easily the achievements that they claim can disappear. The Chancellor of the Exchequer put a brave face on the likely effect on inflation of the recent perturbation in the exchange markets. The right hon. and learned Gentleman overlooked the fact that his own chief economic adviser, Mr. Terry Burns, when he was examined by the Treasury and Civil Service Committee on 16 November 1982 and was specifically


asked what would constitute a major change in the exchange rate assumptions on which the Government's autumn forecast under the Industry Act 1975 was based, replied:
I think I would say, as far as I can take it, anything less than 5 per cent. strikes me as being clearly not major; anything over 10 per cent., say, begins to be clearly major.
When the Government's chief economic adviser says that 10 per cent. depreciation is the beginning of a major change—we have now depreciated by between 12 and 13 per cent.—it is hollow for the Chancellor to say that there are special circumstances that will somehow prevent those conditions greatly increasing the upward trend of inflation.
I shall not detain the House with the measures that I and many other hon. Members believe that Britain can take by itself. It is a pity if we must take steps by ourselves but there are some measures by which we could pull ourselves up by our own bootstraps. My party has estimated that perhaps 1 million jobs could be restored by domestic programmes of the type that the right hon. Member for Taunton (Mr. du Cann) spoke of when he dealt with national capital assets, which are themselves in a wretched state.
I agree with the right hon. Member for Stepney and Poplar (Mr. Shore) when he talks of the value of bringing down the international value of sterling. As usual, however, key evidence of measures to restrain trade union monopoly pressure in important industries was missing from his programme. In the past, that pressure has destroyed almost all of the advantages of depreciating sterling after a year or two. The Labour Front Bench must face that fact. Until the Labour party puts something in its programme to deal with that immense leakage, its programme will not be credible.
I should like to be in the fashion of today's debate and refer to global circumstances. That is the only realistic context in which we can debate today's subject. We are the custodians of one of the greatest trading currencies in the world, and British public opinion is far more educated about the key importance of currency values than people in the United States can ever be expected to be.
If one lives in the middle of Iowa, one is not brought up to think that one's life depends on the exchange value of the dollar. British people, however, travel to Spain and other places on holiday and have a realistic appreciation of the subject. For the Government to talk about world circumstances as though they are the weather and for them to suggest that we can only put up a large golf umbrella, or get our husbands to do so, to protect us against the world is not the mark of a great nation under allegedly great leadership.
It is high time that Britain got away from the parochial, nationalistic and jingoistic attitude to which the alliance amendment refers and tackled some of our world responsibilities. We should discover concerted measures for economic expansion and for the proper alignment of exchange rates. Above all, we must ensure that we do not embark on competitive devaluations, which played such an awful part in the years of economic chaos that bred Hitler and Mussolini and led to the second world war.
We should also bear in mind the appalling state of primary producers. In some cases, they cannot pay even the interest on their debts out of the product of their entire world sales of raw materials because their markets are so

depressed and because of the threat to world banking. No one wants to exaggerate the banking problem for fear of contributing one scintilla to international fright. But it is no good avoiding the fact that banks are terribly exposed. They have taken on the debts of sovereign countries with little knowledge of what they are doing.
It is fashionable in the House—there is some reason for it—to deride professional economists when they descend into the dusty arena and try to prescribe for the world's problems. It is also fashionable to say that they never agree with each other. But one of the most encouraging results of the Treasury and Civil Service Select Committee's visit to Washington was that we were presented with an impressive document that had been agreed by economists and leading economic advisers from 14 countries. They came from as far afield as India, Japan, Europe and the United States. The document is a plan to promote global recovery. It echoed the sentiments that hon. Members have expressed today—the need for concerted international action. These experts believe that Great Britain can play a considerable part in that by leadership, by bringing its own policies into line with civilised remedies.
One of the suggestions in the annexe to this report has not been ventilated today. It is not enough to bolster up banks that have over-lent to sovereign States. That may be a palliative that will prevent a crash. We must give thought to new and better ways of lending on reasonable, not Shylockian, terms to those desperately needy countries.
One suggestion is that savings institutions around the world, especially those in the United States and Britain, have a contribution to make. The Western world has enjoyed prosperity ever since the second world war. Our enormous savings institutions should accept far more global responsibility than they do. Many of them, such as pension funds, have liabilities at a long distance in time. If they are insuring a pension for a worker who is only in his twenties, their liability date is much longer distant than anything that the banks will consider. It has therefore been suggested that the resources of those institutions should be harnessed in a new way to lend to under-developed countries. That would be more satisfactory than leaving those sovereign States at the mercy of banks.
Anyone who, like me, has had experience of a fairly large business that employs a substantial number of people and which is utterly dependent on bank finance that might be withdrawn the next day—albeit only in theory—knows what an appalling inhibition that is when one is trying to develop. It is dreadful for Governments of underdeveloped countries to be weighed down with the nightmare of debt burden.
The Government should take a more internationalist stance. They should be less parochial and nationalistic. They should recognise that recovery for Britain, as for the rest of the free world, depends on concerted global action.

Mr. Stephen Dorrell: The events of the past few weeks have almost inevitably thrown the spotlight of political debate about economics back on monetary policy. Today's debate has reflected that.
Whenever I hear the right hon. Member for Stepney and Poplar (Mr. Shore) talk about monetary policy, it occurs to me that he seems unable to resist any argument that comes to hand which can be used against my right hon. and hon. Friends on the Front Bench, however inconsistent it may be with arguments that he has used previously. A


good example of that this afternoon was his argument that the pound had been over-valued over a long period, followed by his statement that it was a mistake for my right hon. and learned Friend the Chancellor to remove exchange controls. He did not explain how he would resolve the obvious inconsistency between those two assertions. If we had not abolished exchange controls, the pound would have been pushed to even higher levels.
That is one example of the wider failing of all speeches from the Opposition Front Bench in recent months about monetary policy. They have never addressed the central issue—that is, however much they may disagree with the Government's monetary policy, what would they put in its place? We are entitled to know, as are the electorate if it is to be an election year, what yardsticks of monetary policy the Opposition would use if they formed a Government. They have never made that clear, and the House and the country are entitled to know.
No one could argue that the Government have not had a clear policy. Not all of us have been entirely enthusiastic about it while the Government have been in office, but the policy has been clear. I compliment my right hon. and hon. Friends in the Treasury team. The policy has responded to the arguments about it.
It would be instructive to trace developments since the Government took office. In the early days the yardsticks used to govern our monetary policy were extremely mechanistic and resulted in wrong policy conclusions. My right hon. Friend the Leader of the House said at that time that sterling M3, our chosen indicator of monetary policy, was a wayward mistress. Perhaps a more dispassionate way to describe its failings would be that it was an inaccurate meter of exactly how tight was monetary policy in the economy. It gave an entirely false impression of whether monetary policy was lax or tight. Because we followed that chosen meter, we made the wrong policy responses to what we thought was a lax monetary position, but other indicators at the time showed that it was not as lax as the sterling M3 statistics suggested.
Opposition Members have tended to continue that argument as though it was a current criticism of Government policy. It has become ancient history. The Government no longer pursue a monetary policy devoted to maintaining a target for sterling M3. There is a danger that in debate we deal with yesterday's problem and do not move forward to deal with the new position created by the Government.
It is no secret that at the time of the previous so-called sterling crisis in the autumn of 1981 the Government moved their monetary policy on to a rather wider base. From then they did not govern their monetary responses purely by reference to sterling M3. They took account—at first tacitly, and later explicitly—of other indicators of the course of monetary policy.
That was confirmed in the Budget in March last year when my right hon. and learned Friend used a phrase that it would have been inconceivable for him to have used three years earlier. It was that those who wished to know about the implications of his remarks on the policy for sterling M3 could find that arcane statistic buried in the deepest recesses of the Red Book. It is inconceivable that he could have taken that view three years earlier. The signal that he gave in March last year was that his monetary policy was more broadly based and not purely concentrated on a single statistic. I welcomed that.
The past 12 months proved that it is impossible to argue that as a result of that more widely based monetary policy we continued with the tight monetary background that was a characteristic of the Government's early months in office.
The object of tracing that development, which I believe to be historically accurate, is to suggest to the Minister that the time has now come for the Government to take the evolution of their monetary policy a stage further. As the policy was described in the Budget last year, the Government were to look at a whole range of monetary aggregates, including the exchange rate. In the circumstances that we now face, the Government should move again and regard the exchange rate not as purely another measure of monetary policy, but as the lead measure by which the tightness or laxity of monetary policy is judged.
I was struck by what my right hon. and learned Friend the Chancellor said this afternoon about the stability of exchange rates as a concept. He said that that was accepted as desirable by finance Ministers around the world. He clearly stated that he regarded exchange rate stability as desirable, but he said that that was realistic only if it was seen as a consequence, and not a cause, of economic policy co-ordination by the major industrialised countries. I do not think that that is true. It is a chicken and egg problem—oscillating exchange rates make policy coordination in the major industrialised countries much more difficult. It is necessary to look towards currency stability and policy co-ordination as two sides of the same coin, and not as one being a John the Baptist for the other.
The time in the evolution of the Government's monetary policy has now come to regard currency stability as their principal monetary objective and as the principal meter by which the laxity or tightness of monetary policy is judged. Having begun with sterling M3 as our principal measure, and moved away from it, we should now continue that move by regarding the exchange rate as not the exclusive, but the principal, measure of the laxity or otherwise of monetary policy.
It is often said that Governments are relatively powerless to influence the course of events in foreign exchange markets. I find that hard to accept. There can be few markets where the interplay of forces of supply and demand are more perfect than in a foreign exchange market. I accept that the Government can only indirectly influence demand for a currency, but they can obviously and indirectly influence supply. It is not open to Treasury Ministers to argue that they cannot influence the supply of money when that has always been the cornerstone of their economic policy. The original policy was to influence the expansion of money supply by reference to sterling M3. We should now influence the expansion of money supply by reference to the foreign exchanges and to a stability target for sterling.
It is conceptually impossible to argue that Governments have only limited control over foreign exchanges. History and experience both in this country and around the world have disproved that assertion. Perhaps the most recent and successful attempt, over a long period, of a Government to hold down their exchange rate for a clear purpose was the Japanese policy towards the yen, which has only recently been relaxed to allow it to rise. Without examining the background to the Japanese economy, it is


almost impossible to understand why, when a country is running a large current account surplus, it nevertheless ran a weak currency.
The OECD report on Japan, published in the middle of last year, throws considerable light on how the Japanese managed to hold their exchange rate down for a specific purpose. The report states:
The long-term capital balance swung from a net inflow of $2·3 billion in 1980 to a net outflow of $9· billion in 1981. Reflecting the relaxation of capital controls … the relatively easier monetary conditions prevailing in Japan and large interest rate differentials against the yen, the net accumulation of long term foreign assets by Japanese residents more than doubled".
The mechanism by which the Japanese were able to hold down their exchange rate was precisely the policy that the right hon. Member for Down, South (Mr. Powell) described as having nothing to be said in its favour. I doubt whether the Japanese would agree with him. They are investing their capital surplus in markets around the world where they think that they can get the best return on it. In so doing, they are expanding the very markets to which they seek to export their manufactured goods. Some hon. Members may decry that economic policy but, looking at the results in Japan, I do not think that it can be easily dismissed.
I do not underestimate the difficulties of acting directly on the foreign exchanges. Only a fool would do that. Confidence is important, and there are many extraneous factors—the Shore effect may be one of them—that influence a foreign exchange market. The strength of the underlying supply and demand factors cannot, however, be indefinitely denied.
To argue that something is possible is not the same as to argue that it is desirable. The Japanese experience shows why I consider such a policy desirable, but I should like to give a wider argument.
It is no accident that world trade grew most consistently at a time when international currency movements were restrained within the narrowest limits. In the second half of the 1960s, world trade grew in volume terms by 9 per cent. In the 1970s it grew by 6 per cent. in volume but in the past three years it has fallen by 1 per cent. Seeing those statistics, we cannot ignore the fact that the decline in the rate of growth of world trade was almost exactly contemporaneous with the decline in discipline of foreign exchange markets. If that is a coincidence, it is a remarkable one, but I do not believe that it is a coincidence.
Before I became a Member of Parliament I was in charge of an export department. I was a practitioner of the world trade statistics that I have just quoted. As an exporter, I realised that it was unrealistic to regard exporting simply as a matter of flogging a surplus. It is not a matter of getting on a plane to go and sell something when the currency movement is suitable or the price is right. The Japanese have invested over a long period in market development, market support and after-sales service. Building a market is a long-term investment, not a short-term response to price movements on the foreign exchanges. If it is a long-term investment, anyone making key decisions for world trade is fundamentally interested in the stability of the currencies in which he has to trade and particularly in the relationships between them.
I share the Government's deep commitment to the importance of world trade—and free world trade—and

their recognition of the importance of an expansion in world trade for our economy. Much has been said about the importance of not deteriorating into protectionism and of resisting both tariff and non-tariff barriers to trade. I suggest that perhaps the most important single non-tariff barrier to trade now is the fact that no exporter ever knows until he actually receives the cash across the foreign exchanges the real price that he will receive for his product. Fluctuating exchange rates are a very important non-tariff barrier to trade, so if we are interested in free trade we should be interested in removing that barrier.
There is another reason why stable currencies are important for this country as a yardsick of monetary policy. As I have emphasised throughout my speech, I am principally interested in a yardsick of monetary policy rather than in the Opposition arguments about competitiveness. I am interested in the means by which we define the monetary policy that we wish to pursue. Monetary policy is a vital discipline for anyone trying to run a modern economy because it defines the parameters within which a modern economy operates. Therefore, I believe that a monetary policy defined by reference to the exchange rate has a greater chance of achieving its objectives because it is clearer, less ambiguous and more easily understood than any other measure of monetary policy so far developed.
I refer briefly to some of the arguments advanced by my right hon. Friend the Member for Taunton (Mr. du Cann) and the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) about the methods by which the currency stability for which I argue can be secured. We cannot, of course, simply conjure out of thin air today a revised and renewed Bretton Woods agreement. The world has moved on and we must deal with the world as it now is. I believe that the tripod approach outlined by my right hon. Friend the Member for Taunton and the right hon. Member for Hillhead of the European monetary system, the dollar and the yen is the first essential building block for the currency stability that I seek.
Like my right hon. Friends the Members for Taunton and for Sidcup (Mr. Heath) and many others who have spoken, I attach great importance to international financial reform and its role in promoting the expansion of world trade and reducing the risk that some major Western banks now face in their investments, some of which they must now regret, in some newly industrialising and less developed countries.
Several of those who have spoken referred to the recent election of my right hon. and learned Friend the Chancellor as chairman of the interim committee of the IMF and I join them in congratulating him. I suggest that that position gives my right hon. and learned Friend a unique opportunity to point the way for the world towards the international currency stability which I believe is the essential bedrock on which to build the re-expansion of world trade and to deal with the problems of international indebtedness to which my right hon. Friend the Member for Taunton referred. My right hon. and learned Friend has a great opportunity to show the world the way forward and I very much hope that he will take it.

Mr. Allan Roberts: I am pleased to follow the able and courageous contribution of the hon. Member for Loughborough (Mr. Dorrell). It was an attack on the policies of his Front Bench in the guise of an attack on the


policies of the Opposition Front Bench. I agree with a great deal of what he said. By contrast, the speech of the right hon. Member for Down, South (Mr. Powell) was agreed with almost in total, judging by the nods of agreement from the Prime Minister.
I hope the House will forgive me if I leave the global economic position to one side, say a little about the national economic position and concentrate more on the position in Merseyside in terms of the economic crisis and how it affects the people of Merseyside and Merseyside itself. I do so for three reasons. My first reason—perhaps it is the least important and least serious reason but none the less it is a reason—is that, having been called to speak in a debate which has so far had contributions from so many former Prime Ministers and so many aspiring Prime Ministers, it is not likely that the national press will report very much of what I have to say, although the Merseyside press is likely to do so if I say something about Merseyside.
Secondly, an examination of Merseyside does three things. First, it gives the lie to what has been said by several right hon. and hon. Members on the Conservative Benches about the British economy being strong. I believe that it was the right hon. Member for Taunton (Mr. du Cann) who said that the British economy was strong. I say to him "Tell that to the unemployed in Merseyside". If he really believes the economy is strong, he should go for a walk or a drive around the area. The national decline in industrial output of 20 per cent. is only too apparent in Merseyside. Factories such as Tate & Lyle and Courtaulds have closed down. The docks are in decline and unemployment continues to increase, as it did under previous Governments, both Labour and Conservative. However, it has accelerated dramatically during the past three years under the Government.
The right hon. Member for Down, South referred to the surplus of £6 billion to £7 billion per annum on our balance of trade. He said that it did not really matter that a large proportion of that surplus was to do with North Sea oil revenues, and that it was not a serious consideration to examine how that surplus was made up. The implication seemed to be that that surplus on the balance of trade showed that Britain was in a stronger and healthier position than perhaps the Labour party and Labour Front Bench spokesmen were suggesting.

Mr. J. Enoch Powell: I was not arguing from the position of the current balance as to any prosperity or strength of the British economy.

Mr. Roberts: To have the phenomenon to which the right hon. Gentleman referred—a £6 to 7 billion surplus on the current account—at the same time as industrial output is down 20 per cent. shows that the significant thing about that balance is that it is made up of North Sea oil revenues but that those revenues are not accruing to the benefit of British industy or to the benefit of the British people. It is that balance, as a result of North Sea oil revenues, which hides the very economic crisis that Britain is in and which the Government face. Where is the wealth going, which comes from North Sea oil and which should accrue to the nation from that balance of trade surplus? It certainly is not going to British industry to re-equip and modernise it; it certainly is not going to the British people because 3½ to 4 million people are unemployed. In my constituency 26 per cent. of the male population are unemployed—a phenomenally high figure.
Merseyside's problems are the nation's problems written large. Merseyside has been in decline for the past 30 years. Private money has been encouraged to invest in the area to create jobs but that has failed. Previous Labour Governments gave incentives. Merseyside has development area status, which gives grants to new industries. Some industries did come but they have upped sticks and left. They are not coming any more. Unemployment is increasing and the monetarist policies of the Government are doing nothing to create new jobs or even to maintain the existing jobs in Merseyside.
A new approach is necessary. Already in the debate Labour Members have put forward the national policies that the next Labour Government would pursue, including exchange controls, selective import controls and massive amounts of increased public expenditure to re-equip British industry and to rebuild our public and social services.
In addition, as Merseyside is in a disadvantageous geographical position and in a difficult position to benefit should any upturn in the economy come, and as it has never had a strong manufacturing base but has been a port-led economy with a service and commercial base rather than a manufacturing base, special policies must be pursued by the next Labour Government to help revitalise Merseyside, to create jobs and to enable Merseyside to benefit from the national economic policies that the Labour Government will introduce, which will benefit other parts of the country far more easily than Merseyside.
Firstly, a policy must be introduced for the port and the docks. The future of the docks is crucial for the future of Merseyside. Instead of buying off jobs with public money, which is what is happening at the moment, the next Labour Government must set about to revive the fortunes of Liverpool docks. As a pre-requisite for action, the docks must be taken into public ownership. We need a policy for directing shipping so that Liverpool receives its fair share of trade. In order to prevent foreign ships so directed to Merseyside going to Rotterdam or Hamburg, we must reduce the handling costs and charges at Merseyside by adopting the same type of policies as are adopted by Hamburg by giving some Government support and subsidy but by taking away costs, such as lighting costs and the cost of dredging the estuary and maintaining the roads and highways in the area of the port, which at the moment are borne by the port but which should be borne by the community.
Britain's withdrawal from the Common Market would benefit Liverpool considerably and is crucial if we are to revive the fortunes of Merseyside. Merseyside is geographically in the wrong place with regard to our present pattern of trade with Europe. We used to be able to import cane sugar as we wished from the Caribbean. It would go through Merseyside but now, because of the common agricultural policy, Lomé agreements and so on, not only does the sugar not come into Merseyside but neither does the rum. Tate & Lyle has closed as a consequence and the docks have declined. If Britain could buy its food where it best suited the British nation, in the markets of the world where food was cheapest, the docks in Merseyside would benefit considerably.

Mr. Robin Squire: Will the hon. Gentleman accept that, regardless of the arguments for or against the Common Market, even if Britain came out of Europe there is no indication that our trade pattern would


be such that Liverpool would inevitably benefit, any more than he could invariably direct, to use his own words, trade to that port in preference to many other ports?

Mr. Arthur Lewis: It was before.

Mr. Roberts: I agree with the sedentary intervention of my hon. Friend the Member for Newham, North-West (Mr. Lewis). One can plot the rapid decline in Merseyside's fortunes from our entry into the Common Market and the gradual implementation of the transitionary arrangements for imports of food from Commonwealth and other countries. It is a fact that 75 per cent. of the activities of the Common Market are to do with the common agricultural policy and food and not with the exports and imports of manufacturing industries. There is no doubt that Merseyside would benefit considerably. There are already too many ports in Britain. That position would not alter but a national plan for the direction of shipping and the public ownership of all the ports would help Merseyside considerably.
Secondly, there are only about 24 miles of Britain's considerable miles of roadway on which there are tolls. All these tolls are levied on estuarial crossings. They are levied on the crossings under the Mersey and everyone on Merseyside, including all Members of Parliament in the area, of all parties except those who become Ministers, is in favour of abolishing them. If we want to encourage trade and industry on Merseyside, we need to abolish the tolls. In so doing we shall help to provide a better communications system.
Thirdly, it is meaningless for Merseyside to have development area status if the 22 per cent. Government development grant is not available to service and commercial concerns, either new ones arriving on Merseyside or existing ones that are expanding. Currently, grants are available only to manufacturing industries. This policy needs to be altered significantly.
Fourthly, new jobs need to be created by the establishment of a new Merseyside enterprise board, which, along with the Department of Industry, would create new publicly owned industries on Merseyside. Local planning agreements within the framework of the national ones to which the Labour party is committed could be negotiated and enforced by law between private industry and the new enterprise boards.
Fifthly, the local authorities should be given real powers to develop new municipal enterprises of any sort on Merseyside, especially in the building industry, with the expansion of direct labour departments, the baseload of these departments being new housebuilding and a modernisation programme, as well as meeting the needs of the homeless. This would help to reflate the economy through public expenditure without sucking in consumer goods from abroad. It would also employ the unemployed building workers.
Sixthly, the next Labour Government should develop a regional alternative—I hope that it is not too late for the present Government to do so—to the expensive and unwise proposal to build a large third London airport. Liverpool and Manchester airports could work more closely together. That would bring trade and prosperity in some measure to the region and to Merseyside.
Seventhly, the inner city partnership machinery and the Merseyside Development Corporation should be brought together into a new, democratically accountable Merseyside development agency. The management committee of the agency should be composed entirely of elected councillors and, perhaps, Members of Parliament as well, who are accountable to the public through the ballot box. The areas covered by the organisation should be extended and should include all dockland and the inner city areas of Bootle, Litherland and, of course, Walton. It should be given real powers by the next Labour Government, if it is set up, to create new concerns and industries and to create real and lasting jobs.
Eighthly, it is important in any area to have an efficient public transport system if the entire community is to benefit and not only those who use public transport. An efficient transport and communications system is a prerequisite for commercial and industrial growth. Therefore, the Merseyside county council needs the freedom and public support from Government to provide an efficient and cheap public transport system. This should be done by the next Labour Government.
Ninthly, rail services between Liverpool and the rest of the country, especially London, should be greatly improved and upgraded and not cut back. Fast trains should be introduced into areas such as Liverpool to bring more prosperity and easier communications.
The tenth point in my programme for Merseyside for the next Government is the reinstatement of the support that has been lost through massive cuts in rate support grant. These are the cuts that the previous Secretary of State for the Environment, who has moved on to new pastures, imposed on all Merseyside councils, thereby causing rates to be increased. The cuts should be reversed. More grant should be given to councils in areas of high unemployment and social deprivation such as Merseyside and less should be made available to shire counties in areas such as Essex, Cheshire and Kent.
Merseyside will stand a chance of surviving through the 1980s only if a Labour Government are elected that introduce and implement the policies that I have outlined for Mersey side, along with national economic policies that are in Labour's plans for creating jobs and in the alternative economic strategy. Without these policies the decline will continue, unemployment will continue to increase and there will be an even greater breakdown in law and order. Time is short, but the people on Merseyside, a Labour Government, Labour councillors in the area and others of good will can make a difference.
It is only the Labour party that is offering a clear alternative to the Government's policy of mass unemployment. The Social Democratic party and the Liberal alliance are not. Both parties are certainly committed to continued unemployment. My hon. Friend the Member for Liverpool, Walton (Mr. Heffer) has recently outlined in more detail than I have presented to the House the effect that Britain's membership of the Common Market has had on Merseyside. How any member of the SDP or the Liberal alliance can ask for votes on Merseyside is beyond me, bearing in mind the parties' commitment to Europe. Despite the public relations exercise mounted by the Government, and the former "Minister for Merseyside", I believe that the Government have already written off Merseyside. Their claim that there is no alternative to their no-hope policy is a blatant attempt to deceive many of the British people


into accepting bread-line living conditions. The only money to be put into Merseyside has been used to bribe workers into selling their jobs. A garden exhibition is planned while real industry has been closing. As I have said, Tate & Lyle and Courtaulds have already gone.
The onus is on Labour Members and the Labour party, when advancing the policies that I have outlined, to answer the question "Where is the money to come from?" If the public opinion polls show anything, they show that the British people support the policies for which the Labour party stands and is advocating. They show also that the Conservative party has a national lead in the polls over the Labour party. The anti-Conservative vote, which is split between the alliance and the Labour party, is far greater than the pro-Conservative vote. In areas such as Merseyside, the north of England and Scotland, the Labour party has a lead in the polls over the Conservative party. We do not have the national lead in the polls that we need because we have not convinced the electorate, although it supports the main parts of our policy, that we shall implement the policies for which we stand if a Labour Government are elected. One of the reasons for this is that we have not fully put across to the people the answer to the question "Where will the money come from?"
This is understandable when the Prime Minister, the Chancellor of the Exchequer and other Government spokespersons put forward a simplistic view of the economy, which has been advanced this afternoon and this evening once more. It is suggested that the nation is run like a family household and that no family household should borrow money because that is bad. They say that a Labour Government would have to borrow. It has been said this evening that a Labour Government would go on a borrowing and spending spree. This allegation needs to be answered. The simplistic and Mr. Micawber approach—income £20; expenditure £20. 0s. 6d: result, bankruptcy—is not real. Most households borrow, if for no other reason than to buy the house in which they live. They are on to a good thing as long as the money that they owe on the asset that they are buying with the money that they have borrowed is less than the value of the asset that the money is used to purchase.
The same is true of the nation. The public sector borrowing requirement is presently oscillating between £10 billion and £14 billion. The Government are still borrowing, but now the money is used to pay unemployment and social security benefit. The money is being borrowed to pay weekly bills, not to invest in the house or in capital expenditure. I make no excuse for saying that the next Labour Government will borrow to put people back to work and to produce goods and services—the real wealth of the nation—and to create capital assets that will increase, not reduce, the wealth of the nation. The one thing that the Prime Minister has in common with the Militant Tendency, about which we read so much, is their detestation of borrowing.
We have been speaking in abstract terms about the economy. I now speak about the economy in relation to the people about whom we are truly anxious—the unemployed, people in need, the badly housed and children who are leaving school and who cannot find work. One of the Merseyside unemployed has sent a small poem to me. It is not very long but it adequately illustrates the plight of Merseyside's unemployed:
She's never looked for work or stood in queues,
Been snooped upon, or given grants for shoes;

Not once subjected to the deep despair
Of making both ends meet on empty air,
She's never seen her husband's self-respect
Ground into dust from government neglect,
Nor had to face a future, grimly bleak,
On twenty-five pounds twenty pence per week.
She's never been means-tested by the state;
Grilled by the deemsters on things intimate,
Has had to pour her heart out, simply for
Those rights which rarely ever reach the poor,
Whilst leaflets couched in fancy prose, contrive
To keep the myth of gobbledygook alive.
She's never had to see her children swop
The classroom for the subterfuge of 'Yop'.
Or else, because they see no prospect new,
Seek solace from the act of sniffing glue.
For who could now believe, without a doubt,
In corners turned and levels bottomed out?
From Tory doctrinaire all such sins flow,
And what was Circe once is Thatcher now.

Mr. Geoffrey Rippon: Whatever merit may be attached to the speech of the hon. Member for Bootle (Mr. Roberts), it made no contribution to supporting the Opposition's motion which is designed to criticise the Government's interest and exchange rate policies and to urge the reimposition of exchange controls. I am not surprised, because that has not proved to be much of a case.
The debate has properly widened to more fundamental issues. In the past, I have had occasion to be critical of the Government's monetary policies. Certainly it was a mistake to pitch our interest rates in 1979ߝ80 so far above the then United States interest rates, especially when the pound was buttressed by high oil prices. I believed then that to push the pound to more than $2·4 was excessive and damaging to our trade and industry.
I share many of the doubts expressed by other speakers about tight monetary policies. My doubts were reinforced by my belief that the monetary aggregates that were being used—whether M1, M2 or M3—were completely unreliable. As my hon. Friend the Member for Loughborough (Mr. Dorrell) said, what I used to call motorway madness has now finished and sounder monetary policies now seem to be in operation.
Whether pursued by a Labour or Conservative Government, I have always found extremes of monetary policies, like the case for flexible exchange rates, excessively mechanistic and irrational. It is not always remembered that the Labour Government, when the right hon. Member for Ebbw Vale (Mr. Foot) was Chancellor, pushed up interest rates—[Interruption.] I forgot for a moment that the Leader of the Opposition is a dead body over which the candidate for Bermondsey has been selected. I should have referred to the right hon. Member for Leeds, East (Mr. Healey).
There was then an interest rate of 16 to 18 per cent. In 1976, I wrote to The Times saying that interest rates at that level would prove to be a disaster. I was supported indirectly by the right hon. Member for Down, South (Mr. Powell) who, speaking to the junior chamber of commerce in Bangor, said that no country could prosper or indeed survive with an interest rate of 10 per cent.
There is no simple monetarist cure for our fundamental economic problems. It has proved to be a dangerous and a damaging illusion, as my right hon. Friend the Member for Taunton (Mr. du Cann) said, to believe that one can divorce monetary policies from general economic, fiscal and social policies.
Unfortunately, just as the Government are making a half U-turn, the Opposition have chosen to adopt a monetary policy that is round the bend. I cannot as readily as the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) acquit the Opposition of not having had a seriously damaging effect upon the exchange rate by their announcement that a Labour Government would devalue by 30 per cent. in two stages. If we had a Labour Government, the pound would plummet and we would soon be back in the arms of the International Monetary Fund. It is all very well to say that it is highly improbable that the British people would turn to a Labour Government who advocate as a deliberate policy the devaluation of the pound. Nevertheless, the belief that the Opposition are so irresponsible as to put forward that policy has been very damaging.
Artificially to depress the exchange rate, which is now arguably too low, would not help. It would be just as damaging as artificially pushing up the exchange rate with high interest rates. Any stimulus to exports, as the right hon. Member for Leeds, East has argued from time to time, is soon offset by rising import costs. Whatever view one takes of the Government's monetarist policies, we must accept that our exports depend upon improving the competitiveness of industry, on our capacity to innovate, on the maintenance of quality and on the observance of delivery dates. To try to solve the problem of industrial competitiveness and exports by further devaluation of what is already an under-valued pound would be similar to trying to dry a lump of ice in front of a fire.
Happily, we now have a more flexible approach to monetary policy. I was pleased when a somewhat chastened Professor Friedman recently acknowledged that lower interest rates and lower unemployment would have meant lower Government spending, and higher economic growth would have meant higher revenues, and that on both counts the deficit would have been reduced. However, it is true to say, as other hon. Members have said, that there is no magic in the level of deficit. What matters is what goes into it.
I have been worried about the extent to which the deficit is now made up of high repayments of debt interest. In 1974, the figure was about £2 billion a year. I remember that we heavily criticised the Labour Government when the figure rose to £8 billion, and now it is £16 billion. Equally, the enormous sums that we must pay in social security and other benefits are, to say the least, an unfortunate factor in our budget deficit. I share, and have long expressed, the anxieties referred to by my right hon. Friend the Member for Taunton about the continuing decline in capital investment. We have continually cut capital expenditure, which is a fundamental difficulty with which we must deal.
As to the restoration of exchange controls, it is another illusion to believe that there could be or ever was a magic formula to prevent the rest of the world taking a subjective view of the value of sterling. As my right hon. and learned Friend the Chancellor of the Exchequer said, exchange controls did not prevent successive devaluations under the Labour Government.
No Chancellor of the Exchequer, even a Socialist monetary despot, could be like the man in Browning's poem—

His world to make, to contract and to expand
As he shut or oped his hand.
We cannot deal with our monetary and economic policies today in isolation from the rest of the world. That is why I join those who express satisfaction at the Chancellor's new role as chairman of the IMF policy-making interim committee. He will serve the country well if he follows the international route outlined by my right hon. Friend the Member for Sidcup (Mr. Heath) and by the right hon. Member for Hillhead.
We must take initiatives in seeking international action to strengthen the world's financial system and to ensure greater exchange stability. Like my right hon. Friend the Member for Sidcup, I hope that the Chancellor will take up the call of Mr. Donald Regan, the Secretary to the Treasury in the United States, to have a new Bretton Woods type conference, which will have to be preceded by intensive work by Government officials and the central banks.
Little purpose is served by having one summit meeting following another with satisfactory communiqués, in the sense that no one can disagree with the terms, but which result in no useful action. The Versailles communiqué was marvellous, but nothing happened. The Bonn communiqué in 1978, to which the right hon. Member for Hillhead referred, was an admirable document, but nothing happened. If this initiative is to succeed, it will need great care in preparation.
I share the views of those who have said that a first stage would be our negotiating to join a developing European monetary system, not to create a wall around Europe, but to build a regional pillar for a reformed international monetary system of the type advocated by Mr. George Shultz in 1974, when he was one of the main authors of the Group of Twenty's report on monetary reform. I share the views of those who welcome his return to the international scene.
There is no doubt, as my hon. Friend the Member for Loughborough said, that one of the best ways to restore international business confidence would be to achieve a method of managing floating currencies so as to avoid these increasingly erratic exchange movements. That will not be easy. I agree with the right hon. Member for Leeds, East who once said that international economic diplomacy is like rowing a boat through treacle. However, the effort must be made, and made urgently.
I agree with those who say that competitive devaluations of the type of which the Opposition are apparently in favour is as great a threat to industrial and economic recovery as competitive interest rates.
It is significant that in this debate speaker after speaker has made reference to the crisis created by the international debt time bomb. It has at last focused attention on the need to strengthen the resources of the IMF and the World Bank and to do something to bring order out of the chaos that many people, including Lord Lever in the previous Labour Government, have been warning the world is likely to happen and has indeed been inevitable.
Today's report from the Bank for International Settlements and yesterday's meeting of the Group of Ten shows the recognition of the need to mount the rescue operation to help debtor countries that have been induced to over-borrow at rates of interest that would once have been regarded as criminal usury. The hon. Member for Colne Valley (Mr. Wainwright) spoke of Shylock, but, as I once said, Shylock would have been a wet today.
You may have seen, Mr. Speaker, that the notorious Mr. Meyer Lansky died last week in Florida. He was founder director of Murder Incorporated, which was a wholly owned subsidiary of the Mafia. He knew something about loan sharking, and obviously made a good business out of it as far as one can judge. He also knew that, to be a loan shark, one has to have enforcers. There is no way that one can go about breaking the legs of international debtor countries. One just has to bail them out. That is what the IMF, the Group of Ten and the World Bank have been doing. They are only postponing a real solution of the crisis.
The principle is clear. We all know that if one owes £1,000 to a bank, one is in trouble. If one owes the bank £10 million, the bank is in trouble. Unfortunately, today there are short-term rescue operations only, when we should be considering how to end the world trade recession that the bankers have helped to create. The ultimate objective of Governments and of central bankers must be to secure substantial increases in international trade.
Last year the president of the World Bank, Mr. Clausen, said that the present fabric of international cooperation in trade, finance and aid may not be able to survive prolonged economic stagnation. However, that stagnation is continuing. The danger remains, and it is grave.
We should recognise that a time comes when international trade is not just business, but politics. There is also a time when politics becomes security. At least a third of the fall in inflation is due to falling commodity prices. It is that that makes it impossible for many of these debtor nations even to repay the interest on their debt. We may hail a fall in the price of sugar as a tremendous victory over inflation and a tremendous reduction in the cost of living, but what price do we put on the fall of a friendly Government in Mauritius, replaced, as it has been, by a manifestly unfriendly one? For example, one cannot ignore the warning, early this month, of the Jamaican Prime Minister who, according to Time Magazine, said:
If we don't have growth, you will be looking at independent countries searching for the alternatives to the private enterprise economy.
Some Labour Members may welcome that, but I am not pleased to know how the Marxist parties are growing in strength in every Caribbean island.
Another aspect of this problem relates to those who believe in protectionist policies, through which we could somehow isolate ourselves from what is happening in the rest of the world. I do not agree. I share the view of the hon. Member for Colne Valley that Britain, more than most countries, has a continuous interest in generally liberal trading policies.
I am not sure about the views of the Opposition. The right hon. Member for Stepney and Poplar (Mr. Shore) is something of a protectionist. The right hon. Member for Leeds, East only this week denounced beggar-myneighbour policies. I hope that the Opposition will make it clear that they favour a liberal trading policy and that they will give all the support that they can to initiatives on the international scene to try to assist other countries, in particular some of the debtor developing nations.
It is only when we and other industrialised countries are prepared to play an effective role in recreating world trade that we shall have any hope of dealing with our own critical unemployment problems.

Several hon. Members: rose——

Mr. Speaker: Order. Four hon. Members are still waiting to speak. There are 32 minutes left before it is hoped to wind up. If those hon. Members could make eight-minute speeches, everyone will get into the debate.

Mr. Dafydd Wigley: Several hon. Members have given attention to questions such as whether the exchange rate should be the dominant indicator that we try to keep stable, whether we should give more attention to the growth of the money supply or whether the rate of inflation, interest rates or the public sector borrowing requirement are the most important considerations. Unless all those policies and parameters come back to the question how they affect people, they will not be all that meaningful in places such as my constituency.
The level of unemployment must not be a residential factor that is allowed to drift one way or another after all the other parameters are considered. In the area that I represent, male unemployment is 22 per cent. In the whole of Wales about 37,000 young people under 20 are out of work. Unemployment in Wales has increased from 7 per cent. in 1979 to 17 per cent. now. We have seen the activity rates falling so that there is hidden as well as overt unemployment. Activity rates for men have fallen from 78·3 per cent. in 1975 to 74·3 per cent. in 1981. There is a tragic waste of human potential. A cancer is running through communities. That is why I believe that the excuse given by the Government that unemployment is universal and inevitable must be questioned.
A number of speeches from both sides of the House have challenged that excuse. Is it not depressingly defeatist to accept unemployment as inevitable at the levels that we are suffering today? It is untrue to say that it is universal. We are going through an international depression, but unemployment is not at the same massive levels in many small independent countries the same size as Wales. The Employment Gazette in December showed that unemployment was 2. · per cent. in Austria, 3 per cent. in Sweden, 1·8 per cent. in Norway, 0·5 per cent. in Switzerland and 2 per cent. in Greece compared with 17 per cent. in Wales. In Japan, which is a larger country, the level is 2ߝ3 per cent. It is 8·4 per cent in Germany—half the level that we are suffering in Wales.
Other countries have not been prepared to accept unemployment at the level that we have had to suffer. When I was in Sweden a few months ago the incoming Government regarded 5 per cent. unemployment as unacceptably high and set about a programme to create 20,000 new jobs a month in public sector works, social schemes and so on to bring down unemployment. It is a myth that unemployment is universal and inevitable.
Another myth that must be exploded is that in the modern technological world, with the present changes, no work is left to be done and there must be fewer net jobs as a result of that revolution. Automation and microtechnology mean that some jobs come to an end, but that does not mean that there must be fewer jobs in total. There will be fewer jobs in some sectors, but not all. If work is ended in one category, it does not mean that no other jobs will need to be done in the community. We need a mechanism to ensure that the wealth that is created by the new technologies is recycled so that other jobs in the


community are created and sustained. The same is true of the benefits that come from North Sea oil, to which I shall return later.
Work needs to be done in our community. We need only to look about us to see it. The right hon. Member for Down, South (Mr. Powell) referred to the care of the elderly. That is an increasing problem. Given the demographic factors, it will be a major problem over the coming years. We must consider care for the elderly and disabled. There is a need for more staff in hospitals and day clinics and more home helps. Work needs to be done all round us, but it happens to be work that is not triggered by the present mechanisms. Therefore, we may need to look for a revolution in that direction.
Work needs to be done in the physical environment on repairing and building homes. In Wales we need 60,000 new houses, and 100,000 need to be repaired. Work needs to be done on the building of roads, new training centres, hospitals and clinics. Work needs to be done in the environment, both in inner urban areas and in rural areas.
People who are out of work want to do that work, yet we are paying people to do nothing rather than the work that needs to be done in our communities. As a community, should we not pay more to those people to do the necessary work than for being idle? Is it not fairer to spread the burden of the present depression through the whole community rather than landing it on the 20 per cent. who are at the bottom of the employment market, and, if necessary, increasing taxation to bring those people into employment?
This is something we must not shirk. We must not hide behind the excuse that we can always borrow our way out of the problem. It may be necessary to raise taxation to give people work. We also need to ensure that the level of skills is increased. The number of people in recognised apprenticeships has dropped by a third from 153,000 in 1979 to 114,000 in 1982.
The fundamental question to be asked is what is happening to the wealth that has been created from the oil industry and from the technological revolution? Why has not the wealth been recirculating to bring into employment people who are unemployed? Two major factors are causing the problem to be far worse in the United Kingdom than in other countries. Our exports have grown very substantially in terms of oil. If we are roughly balancing trade with our trading partners, we may be selling oil to them and importing manufactured goods from them to pay for the oil. We are selling oil that has a low labour content and importing manufactured goods that have high labour contents. A few months ago the Prime Minister in Glasgow said that over the last 20 years we had imported manufactured goods to the extent of 1·5 million jobs which was a sobering figure. She said that we cannot indefinitely continue on this pattern or we will have no manufacturing industry left when the oil runs out.
The second question is, what has happened to the capital formed within the economy? I hesitate to cross swords with the right hon. Member for Down, South (Mr. Powell) as I respect his intellect in these matters, but if there is a current surplus within the domestic economy it does not inevitably have to be spent overseas. It must be possible to use the current surplus as capital investment within the home economy, thereby bringing benefit at home and creating jobs. With the lifting of exchange

controls, there has been a massive move of capital overseas. Three years ago there was virtually no outward capital movement. Two years ago there was £2 billion net capital outflow and last year it was up to £8 billion—equivalent to a million jobs. One million jobs appear to have been lost in terms of the outflow of investment. Taken together with the 1½ million jobs lost by importing manufactures, that accounts for a large proportion of the present unemployment.
I am not advocating that we become an island and cut ourselves off totally. I am advocating that there is a need for control and planning of these factors. The free-for-all has landed us with the unemployment problem which is besieging communities like my own. That is why we need to look more radically and fundamentally at the questions of exchange controls and parity rates since these are fundamental factors which are causing unemployment in the community.

Mr. Speaker: I am very much obliged to the hon. Gentleman, but one of the hon. Members who had been trying all night to speak became fed up when I spoke of eight-minute speeches and has departed. I want the House to know that speakers will now have a few minutes extra.

Mr. Ernie Ross: During this debate on the economy, Conservative Members have argued that there is no going back to the failed policies of the 1960s and 1970s. Many hon. Members will agree, which is why my hon. Friend the Member for Oldham, West (Mr. Meacher) referred the House to Labour's programme and the alternatives contained therein. We have responsibilities tonight. We must not forget that the failed policies of the Tory Government have created the worst unemployment and the deepest industrial recession since the 1930s. The Government will also proclaim their achievement in reducing the rate of inflation, but we must point to the heavy cost in lost employment and output.
We must argue that deflating the economy, depressing manufacturing output and throwing workers on the dole are not, and never can be, acceptable strategies for countering inflation. We must warn that, when the present very low level of world commodity prices begins to recover, inflation will inevitably take off again.
When the Government try to shift the blame for the present slump on to the worldwide recession, which is affecting every country, we must stress that the slump in Britain has been, and still is, dramatically worse than elsewhere. In terms of output, industrial production, investment, loss competitiveness and unemployment, our record since 1979 has been markedly worse than those of our major industrial competitors. The Government have contrived to achieve this state of affairs despite the advantage of self-sufficiency in oil since 1980. The Conservative party always claims that everything will be better tomorrow. It is always "tomorrow". The Chancellor of the Exchequer said so in 1980. The Prime Minister said it in 1981 and the Financial Secretary said it in 1982. Conservative Members will be queueing up throughout 1983—right up to the election—to remind us that it will get better tomorrow.
We must ensure that the British people are shown the real facts that lie hidden behind these Tory fantasies, such as those revealed in last month's seasonally adjusted and manipulated unemployment figures. They show that for


the 48th month in a row the number of people out of work in Thatcher's Britain has gone up to a post-war record of well over 3 million. It is on facts such as those, which reveal the Conservative party's mismanagement of the economy, that the Government must be judged.
Like other hon. Members, I want to take the debate back to the real people of Britain, who are suffering from the effects of the Government's economic policy. Dundee has paid an enormous price for that disastrous policy. The announcement of 400 redundancies at Veeder-Root in November 1982, the shedding of 38 jobs at Holo Krome and the unemployment figures announced at the time, meant that unemployment then stood at 16,000. It has risen significantly since then.
Those figures represent a 112 per cent. increase since the Conservative party came to power in 1979. Since January 1982, seven Dundee firms have gone to the wall, and there have been a further 25 redundancies in other companies. A total of 42 per cent. of men registered as unemployed have been out of work for more than a year. More than 1,000 are in "one step away from the dole" jobs—those are supported by job protection schemes. In Dundee, 20,000 people are claiming supplementary benefit, and more than 1,250 young people registered as unemployed have never had a job since leaving school.
The number of engineering apprenticeships has dropped from 134 in 1978ߝ79 to 61 in September 1982. In November, when there were 452 redundancies in the Dundee engineering industry, there were only eight vacancies over which those people could scramble to find a job. These gloomy figures reveal the disastrous extent to which the Government's economic policies have hit Dundee.
The textile industry was a major employer in Dundee. In 1977, it employed 7,500 people. In 1982, the number had fallen to 2,000. There has been a loss of 5,000 jobs with no vacancies. That industry had a docile work force that accepted closures, redundancies and short-time working allied to relatively low wages—all that the Prime Minister said they should do if they wanted to preserve employment. Instead, those people have lost their livelihoods and dignity because of the Government's failure to deal with cheap imports from Bangladesh and India and, more particularly, market saturation from the EC, especially Belgium. When a group of hon. Members met the Minister responsible for industry at the Scottish Office, all he could offer was platitudes. He could not even offer a retraining programme for those people.
The most serious threat now facing Dundee affects the new technologies, even though the Government have said that we should all be concerned with their viability and success. Nimslo has recently announced that it intends to move the production of its 3D camera from Timex in Dundee to Japan. Despite the fact that that camera was developed as a result of the skills, expertise and experience of the Dundee work force, Nimslo has decided not to take advantage of the Government grants it was offered, has abused the Timex work force and has moved production to Japan.
The company claims that it can produce it much cheaper in Japan. One of the reasons why it can argue that is that the Nimslo company did not take advantage of the investment that was offered. The Timex company failed to invest in the new plant and machinery that would allow

those engineering workers, tool makers and assembly workers who had produced the camera in less than two years to take advantage of their hard work.
The Timex company came to Dundee in 1947 because, as a Timex publication recorded at that time, it found a pool of intelligent and readily trained people who adapted to a specialised industry with excellent results. Since then, the Timex company has had a tremendous and magnificent response from its work force. It has had a good industrial relations record. A traditional watchmaking industry is dying because of a lack of investment in plant and machinery that would allow the workers in the company to compete with their French counterparts in the use of new technologies.
That is best expressed by the words of Mr. Jim Tinney, the chairman of the staff section of the AUEW at Timex. He said:
With no research and development facilities at Timex, new products only appeared on the production line as a direct result of union pressure.
He refers also to Veeder-Root:
Veeder-Root lost out because of being unable to carry out research and development locally into electronic digital counters for petrol pump heads.
Dundee is being denied research and development facilities which means inevitably that it is dependent upon the dictates of the parent company. We shall gain nothing from being able to solder microchips if the technology to produce them and the knowledge to design them remain in the United States.
Those workers need assistance. They are putting together a package that they will present to the Scottish Office with, I imagine, little hope of any substantial financial assistance. That contrasts with the way in which the Mitterrand Government in France responded to the needs of the Timex workers at the Besancon plant. The Mitterrand Government were prepared to hand over £90 million to ensure that the Besancon plant could be modernised to take advantage of the technology that Timex wished to site there. If Jim Tinney's hopes are to be realised, a radically different economic approach requiring large scale public support is needed for the microelectronic industry in Dundee and for the application of new technologies throughout the industry.
Specific measures for new technology must be backed by an increased rate of growth in the economy. That can be achieved only by a reflation of demand based on an increase in public spending, tax cuts for the low paid, a policy of full employment, the revitalisation of our manufacturing base and the control of import penetration by foreign manufactured goods. Priority must be given also to the level of effective demand in the economy to catch the increased productivity potential.
There must also be a place in this equation for the trade union movement. During their three years in office the Government have made a point of denying the valuable role that is to be played by trade unions, particularly in the development of new technology. The trade union movement has a vital and central role to play in the introduction of new technology—the speed of its introduction, the way in which it operates upon working conditions, job content and status for employees and, more important, its effect on employment. That is clearly demonstrated by Timex in Dundee.
At Blackpool last year, whatever else happened, the Labour party adopted a series of policies that offer the people of Great Britain relevant Socialist answers to the


many problems that beset them in a capitalist system in deep crisis. They are policies which offer the hope of rebuilding our industrial base, reconquering our domestic markets and restoring Great Britain to full employment. They are policies that aim at developing our social services, making major improvements in social benefits and eliminating poverty. They are policies that defend the rights and interests of ordinary workers, control rents, prices and fares. They will allow workers to organise freely in trade unions in defence of wages and conditions. They are policies that will bring into, or back into social ownership, those assets that are vital to the creation of an efficient and democratic industrial structure.
"Labour's Programme '82" gives a detailed account of all our party's policies. They offer the prospect of a fairer, more prosperous and Socialist Britain. They are the only hope that the Timex workers can look to in 1983.

Sir Brandon Rhys Williams: I have the honour to be a Member of the Parliament in Strasbourg where pressure on the timetable is often so severe that even party leaders have to confine their remarks to four or five minutes. I have more than once been confined by the Chair to 90 seconds. To be able to speak for 10 minutes is British plenty.
I wish to comment on the speech of the right hon. Member for Stepney and Poplar (Mr. Shore) who made a strong attack on the Government's exchange rate policy. It struck me, as someone coming to the House of Commons from a business background, as rather academic. But the right hon. Gentleman drew attention to the fact that the Government have an element of choice in their exchange rate policy if they wish to exercise it.
When the oil revenues began to flow in, the Bank of England must have recognised that there was a choice of policies possible—either to let London remain a high interest-rate financial centre, which would result in attracting capital to London, create a high value pound and give us the benefit of cheap imports but at the same time bring pressure on the internal price level; or to contrive that London should be a low interest-rate centre. The Bank of England has a certain element of discretion. It is not true to say that it does not. That would have given us a low exchange rate for the pound, provided a stimulus to exports and, of course, promoted investment within the British economy. It was a difficult choice to make.
I do not believe that in 1980 and 1981 Britain was fully in a position to seize the opportunities that would have arisen had we had the benefit of a low rate of interest and a low exchange rate for the pound. I do not believe industry was ready to reinvest and modernise on the necessary scale. I am afraid that much of the investment that would have taken place would have gone into the purchase of existing assets, which is purely inflationary. Equally, I do not think that the unions were in the mood to allow the sort of economic revival which ought to have followed from a low interest rate and a low exchange rate for the pound. I do not know whether they would even now.
At all events, the Government chose a policy of industrial reorganisation, trade union law reform and stable internal prices. In those policies they have achieved remarkable successes. Industry is much more competitive

than it was and the work force is far more aware of the need to innovate and to cut the costs of production. The British economy is far fitter now and much more ready for a revival; but confidence is lacking all round the world.
The question therefore for the Government is how to help to create conditions in which business confidence will revive internationally. Britain is part of the world economy and cannot live simply for itself. I am certain that any business man will say that the Government can do nothing to help international business confidence by jiggering the exchange rate for the pound.
Since the breakdown of the Smithsonian settlement in 1973 and 1974 we have been suffering exactly the same problems as the world experienced after the breakdown of the gold standard in 1931. I shall not draw up a list of all those problems, but the economic patterns of the 1930s and of the late 1970s and 1980s are very similar. We know what to do to solve our problems. The question is whether we have the will.
We know that we ended the economic depression last time by setting up an international structure of exchange rates and stable financial conditions—the Bretton Woods agreement. Last year I had the privilege, as a member of the European Parliament's Economic and Monetary Affairs Committee, to be invited to attend the International Monetary Fund meetings in Toronto. I have been to these meetings on a number of occasions. This time the only spokesman who managed to fill the hall and arouse enthusiasm was Mr. Muldoon. It was known in advance that he was to make a call for the restitution of the Bretton Woods system. I listened to his speech but I do not think it was realistic.
At the end of the war, in 1944ߝ45, the Americans were in a position to establish a world monetary order. Now they are suffering from what one might call aid fatigue; they are preoccupied with their internal problems of inflation, budget imbalance and so on. But that does not mean that we cannot make progress in reaching an international agreement which would assist business confidence.
The structure of the SDR is 50 per cent. the United States dollar, about 12 per cent. the yen and the remaining 38 per cent. or thereabouts the three major European currencies, the pound, the deutschmark and the French franc. Our membership of the European Community thus enables us to do a great deal towards the restoration of international business confidence. We ought to be setting out to organise our own time zone, as I might call it, by working more closely with Paris and Frankfurt.
Above all, we must avoid what one might call a return to national socialism, which was advocated by the right hon. Member for Stepney and Poplar—protectionism, bureaucratic intervention, controls, quotas, five-year plans and the rest. National socialism did Germany no good. Even at its height, Schecht had to recognise that Germany had to live by its exports. He tried to give German industry a prominent place in the export market. The retaliation that would inevitably follow if we adopted the recommendations of the right hon. Gentleman would be disastrous for Britain's place in the world community. We have to make the most of our practical opportunities.
In regard to sterling and the European monetary system, I do not think that we should simply announce that we will join it from one day to the next. Sterling is so freely traded in such large volumes all over the world that if the Bank of England was committed to intervene at a fixed rate,


whatever the pressure of selling or buying, it would be a matter of weeks only before we had to leave the monetary system once again. We should not join the EMS without adequate preparation. However, there is a time—and it has come—for us to open negotiations to join the European monetary system under certain conditions. We should take the 6 per cent. margin which the Italians have. Also, it must be understood that we will move the central parity for sterling in accordance with the market's assessment of the relative value of the national currencies in the European monetary system.
It is fruitless to exert pressure on national economies through over-valuation, which is the custom that has grown up within the European monetary system as it is at present being operated. To avoid variations in exchange rates there must be real convergence of the underlying economies, not just a persistence of fixed, false, numerical currency relationships which get overthrown sooner or later by market forces.
The central rates for the European currencies should be adapted regularly, perhaps monthly, to reflect the purchasing power parities so far as we are able to assess them. Then I should like to see a truly European market for capital. At the moment it is only possible to establish a truly free capital market between London and Frankfurt, but in due course Amsterdam would come in; and I think Zurich would come in although strictly outside the European Community. Gradually a single real rate of interest for the Common Market would emerge instead of an artificial structure of fixed exchange rates which convinces no one. Unity of business conditions is far more important than an apparent unity of fixed currency exchange rates in which no one believes.
There should be some stimulus to large-scale investment through the Ortoli facility, which fortunately has just been renewed. I should like to see deliberate progress towards the ending of the tax frontiers which still serve to Balkanise Western Europe because the various member states operate such different rules. European industry is wrongly structured to face the challenge from the Far East. Unless we work together and think in terms of international investment within the Common Market, we shall be the world's unemployment pocket in the next 20 years.
We need also to improve as far as possible our relationship with the world's other currency areas. I believe myself to be reliably informed on the attitude of Japanese bankers, including the central bank. They are saying that they would prefer to see the world resisting Japanese goods because they are too dear rather than because they are too cheap. I believe that the Japanese authorities would welcome a rise in the exchange rate for the yen.
The most that we can ask of the United States is that there should not be such violent interest rate movements and that a more permanent structure should be established between the European exchange rate system and the dollar. But now that my right hon. and learned Friend the Chancellor is in a leading position in the IMF, I am sure that where that institution is concerned a large new loan must be established to fund the OPEC surpluses. The best way to raise it would be on the basis of an indexed rate. I should like to say more, but time will not allow.

9 pm

Mr. Denis Healey: The debate has been distinguished by many able speeches, although I am bound to say that few right hon. and hon. Members surprised the House with the nature of their views. The only exception was perhaps the right hon. Member for Down, South (Mr. Powell) who surprises us so frequently that we cease to be surprised. For me, there is an element of nostalgia, to which the Chancellor referred, in this debate. It is some time since he and I confronted one another across the Dispatch Box. We are both older now than we were. I must say that, on this occasion, I feel a little more as if I was being nibbled by a hearth rug.
In view of the heavy fall in sterling in the last 10 weeks, I think I should start by considering the relationship between exchange rates, interest rates and the main propositions of the theory by which the Government's economic policy has been guided over the last three and a half years. No one, I think, would feel that I was being unfair if I stated that the Government's policy has been based on three propositions—first, that there is no rational objective that a Government can set themselves in governing the economy, except to control the level of inflation; secondly, that this can be done only by controlling the growth of the money supply; and, thirdly, that the money supply can be controlled only by raising or lowering interest rates. These three propositions form the trinity of what I have come to call sado-monetarism.
In the course of my exegesis, I wish to try to answer the questions that so bewildered the Prime Minister in her seminal interview with Mr. Brian Walden on Sunday. She said that what ultimately determined the value of sterling was the policies that the Government pursued steadily and consistently. She added:
We may go through a period of rocking"—
I am not sure what she meant by that, but it certainly was not rolling—
but if we keep our policies firm and do all the right things, you know, keep public spending under control, keep the Budget deficit low and, keep public borrowing down, keep the money supply under control, these are the things that will tell, and the boat will come through surely and steadily, and sterling will stay firm".
The right hon. Lady made it clear on Sunday, as she has done frequently over the last three and a half years, that it is the magic of the market place responding to this resolute approach by this Government which will achieve the desired objectives. She has, however, found the market place just a trifle disappointing in the last few weeks. When she arrived back in London from her visit to the Falklands she joined Queen Victoria in her regal pantheon by saying "We are not impressed by the behaviour of the markets". She was a little more direct when she addressed the Tory trade unionists on Saturday and referred to
the fickle fears of those who should know better".
That is the Maggie that we know and love.
One thing that has always struck me is that those who rely most on the market place to achieve their objectives are those who understand least how the market place works. I shall deal with the Prime Minister's puzzlement when she said that part of the realignment against the deutschmark and the yen was reasonable because their industrial performance has been much better than ours for a long time but that, for reasons which were utterly inexplicable to her, their currency was performing weakly


for a while. I should like to take this opportunity to try to disperse her bewilderment and explain what I and most people in the markets agree happened.
For most of the past three years, interest rates have been determining exchange rates and the markets have been rewarding economic and monetary vice, not economic and monetary virtue. Countries with poor industrial performance, high inflation and inadequate monetary control have seen their currencies rise. Countries with good economic performance, low inflation and good monetary control have seen their currencies fall. For the first two years of the European monetary system, for example, the French franc was at the top of the basket and the German deutschmark was at the bottom, not in spite of the fact that French inflation was higher but because of it. I suspect that the reason for that is as follows.
Since the world stagflation of the 1970s, those who manage the atomic cloud of footloose funds in the Euro markets have lost confidence in any long-term investment of those funds and been interested mainly, but not exclusively, in making short-term gains by exploiting interest rate differentials between one country and another. Therefore, billions of dollars have been moving hour by hour across the exchanges, following even marginal differences in short-term interest rates.
Countries which have given absolute priority to controlling the money supply through interest rates have consequently witnessed their currencies rise whenever they publish bad monetary figures. That has been a regular phenomenon in both New York and London. It happened to the dollar a few days ago in New York. That has been the principal consequence of high interest rates in the countries that have adopted sado-monetarism, but the main purpose of high interest rates was never achieved. High interest rates did not succeed in controlling the money supply. The Chancellor will recall, although he may not wish to do so, that, for his first two and a half years as Chancellor, we had uniquely high interest rates, yet the money supply was completely out of control. It was rising at two or more times the rate that he planned for it each year.
Those high interest rates crucified British industry by raising not only the cost of investment and research and development, but the price of the goods that it exported. Therefore, British industry, like American industry recently, has been subjected to a double squeeze. That is very unfair, because Government theology has taught Ministers to believe that precisely the opposite will be the result.
Four days ago the Chief Secretary to the Treasury said that the way to reduce interest rates is to reduce the public sector deficit. But what happened? We have had the strictest fiscal policy of any major country in the industrial world—the OECD has said so and it was described in detail in a recent paper by a broker in London—but interest rates have been falling more slowly than in Japan, for example, which has had twice the public sector deficit. Despite the fiscal misery to which the Government have subjected us, our interest rates, as the Chancellor had to admit today, are now higher in real terms than they were three years ago, and 4 per cent. higher in nominal terms than interest rates in New York. After three years of crippling interest rates and an over-tight fiscal policy, it

is only now that the Government have the growth of M3 down to the average level to which it rose during the five years of Labour Government.
Although money supply rose at more than twice the rate set for it by the Government two years ago, rather than having much higher inflation—which is what the Government told us to expect—inflation came down. That is another puzzle for the Prime Minister. But, of course, everyone knows that inflation has fallen partly because of the depth of the recession—there is no inflation in a cemetery—and partly because of a grossly over-valued exchange rate that reduced the cost of our imports. That is another puzzle for the Government and those who believe in sado-monetarism.
Why is the exchange rate now falling? It is because the markets appear to be changing the priority that they give to interest rates compared with current account performance. There is a great deal of evidence in many countries that current account performance is becoming, as it used to be, the major factor in determining the value of the exchange rate.
The Government told the markets last autumn that they expected the massive balance of payments surplus that they were expecting in 1982 to disappear altogether in 1983. Since giving that prediction, there has been a softening in the price of oil, with the risk of a collapse. I am sure the Government know that if the OPEC price falls this weekend as a result of the meeting of OPEC Ministers, all the pressures on sterling will begin again.
Until recently, and, even now, they do so occasionally, the Government claimed that they could not control the exchange rate. However, as I have demonstrated, by raising interest rates they did push up the exchange rate. It is interesting that when the exchange rate fell below the level that the Government had privately set for it, they panicked. There were two increases in interest rates within a month and massive expenditure of reserves through intervention by the Bank of England—both actions that were wholly incompatible with the Government's theory.
This afternoon the Chancellor tried to get out of it by saying that he raised interest rates to protect monetary policy. Oddly enough, that was done at the first moment since he took office as Chancellor that monetary policy was under control. It is not surprising that the guru of monetarism, that intelligent man Mr. Gordon Pepper—I always feel that one should take more salt with the pepper—wrote in the January issue of Greenwell's Monetary Bulletin:
In the foreign exchange market, the authorities' tentative interventions have brought them the worst of both worlds and have prolonged the period of sterling's adjustment to its previous over valuation.
In domestic markets, too, the authorities have not been decisive.
So much for the resolute approach.
The Government do not know—I am trying to think of the anatomical phrase to best describe their position—by what rules they should operate. They have no policy. They find themselves in the economic area in much the same position as Lord Carrington found himself some 18 months ago, when he had no policy to deal with the Falklands dispute except to go on talking—and, my God, the Tories do go on talking.
The Chancellor reminds me of a driver who was stopped by a patrol car on a motorway. The policeman said "You are drunk". The driver said "Thank God, I thought the steering had gone". I predicted a long time ago that the


Prime Minister would do for monetarism what the Boston Strangler did for door-to-door salesmen. She has, of course, succeeded. The memorial to her policy is visible to us all. The price of her experiment—as the Bank for International Settlements described it—is record unemployment, a record level of bankruptcies, the lowest manufacturing output for 17 years and the biggest fall in national output suffered by any industrial country in the past three years. Ironically, those who have suffered most from her policies are those whom she promised most to help. The entrepreneurs in private industry were, as the House will recall, to be galvanised by this Government. Boy, were they galvanised! The right hon. Lady has strapped them down in the electric chair and pulled the switch.
In her interview with Mr. Walden on Sunday, the Prime Minister took credit for the wonderful things that she was to do for new industries and innovation. What are the facts? A CBI survey published in the newspapers this morning shows that research and development expenditure, the key to all innovation, had been on average absolutely flat for the past four years. The only industries in which it has increased are electronics and chemicals, but even there it has increased at only half the rate of the previous four years.
There is an epitaph for this policy, whose author is very close to the Government's heart. Its author is the Morgan Guaranty bank—the British Government's bank in New York and the only New York bank which still has a triple A rating. A current issue of the bank's bulletin is entirely devoted to the lessons of Thatcherism. As I might be regarded as prejudiced if I made my own summary, I shall quote the summary in the Daily Telegraph business section.

The Chief Secretary to the Treasury (Mr. Leon Brittan): Does the right hon. Gentleman have a copy?

Mr. Healey: I have it here, and I shall quote from it:
Morgan believes Britain has suffered from an overvalued pound which, in turn, was the by-product of Mrs. Thatcher's determined monetarism combined with unrestrained pay rises during the early part of her Government. Morgan calculates that in terms of relative costs of production, the pound was 58 p.c. overvalued in 1981 and 34 p.c. overvalued during most of last year.
Even after the 10 p.c. fall in the value of the pound in the last six weeks of 1982, Morgan calculates that the pound was 20 p.c. too expensive at the beginning of this year, which could explain why it continues to falter on foreign exchange markets.
Morgan Guaranty devoted a whole issue of its bulletin to the Thatcherite experiment to point out the lessons for the United States, where Reaganomics is facing an even greater failure—mainly although not wholly for the same reasons—than Thatcherism.
That brings me to the other main theme of the debate—the crisis in the world economy and the accompanying crisis in the world's banking system which, despite the Prime Minister's new placeman at the Bank of England, is still very much with us. Even as late as September, on the eve of the IMF jamboree in Toronto when I, like the right hon. Member for Sidcup (Mr. Heath), had been raising the problem for three years, I was told by the good and the great, and certainly by the Government, that it was absolute nonsense and there was nothing whatever in it. The only step that the Chancellor took was to bring forward the IMF discussion that should have taken place in 12 months' time to next Easter. Now,

thank goodness, he knows that there is a problem and has brought the discussion forward to February. We greatly welcome his belated recognition that there is a problem. It is a great pity that he did not recognise it when the rest of us did and took action before it became as grave as it now is.
I very much welcome the decision to double the resources of the IMF. That is now under way. How could I fail to welcome it, having asked for it for so long? But many other steps must be taken by way of first aid to the world's banking system in the next few weeks. Central banks must be given more influence over commercial banks in their countries and the Bank for International Settlements must have more knowledge and influence in what the central banks are up to. A big increase in the resources in the World Bank is also needed.
All that, however, is merely first aid for a banking system that is hourly threatened by collapse. As is daily more widely recognised throughout the world, there is no chance of saving the international financial system without a change of economic policy in the main industrial countries. The less developed countries that do not have their own oil—Mexico, incidentally, is not one of them, but despite its oil it is still in trouble—have seen the cost of servicing their debt rocket up due to excessive interest rates in the developed world, and their ability to service their debt cut colossally because, as a result of the world recession, commodity prices are the lowest for 30 years. The risk is that if we avoid an early banking collapse it will be at the expense of a contraction in bank lending to the non-oil developing countries, which would drive them into mass starvation and revolution and would probably lead before long to widespread default as well.
The greatest worry for most of us, certainly in the Opposition, is that the problems now facing the world economy are due primarily to the extent to which other Governments are following the lead set by the British Government. The Chancellor boasted of that just a few moments ago. Yet the next voice that one hears is invariably that of the Prime Minister or the Chancellor saying that our problems are massively increased by the fact that there is a world recession. It is like the leader of the Gadarene swine complaining when he falls from the cliff that the other swine are falling on top of him.
There is now increasing recognition even among Governments that there is no hope of saving the economic system of the Western world from collapse without a collective strategy for growth. The French Government have been preaching that for many months and now, to our immense surprise as well as relief, so are American Treasury Secretary Regan, American Secretary of State George Shultz, who has such massive influence in this area now that he is in Washington, and, above all, Mr. Beryl Sprinkel—until now the most rigid and doctrinaire of all monetarists anywhere in the world. Last weekend, according to the newspapers, Mr. Sprinkel actually tried to get the locomotive out of the shed again. He said that countries that have brought down inflation should take the lead in pulling the world out of recession by increasing demand and he named his own country, Britain, Germany and Japan. We all agree 1,000 per cent. with what he said, but the Chancellor turned him down flat and the refusal of the Group of Ten to accept that advice yesterday cancels out most of the value of the improvements in first aid to the IMF through the increase in the GAB and the coming increase in quotas.
The lesson that has been learnt not only in Britain but in many other countries from the bitter experience of the past few years is that economic growth cannot be achieved without consensus at home and co-operation abroad. The tragedy of our country is that both consensus and co-operation are totally alien to the character of our Prime Minister. In that chilling interview on Sunday when the icy glitter of her eyes not once was softened by a glimmer of compassion for the victims of her rigidity, she pledged herself to those values of Victorian society which the leaders of the Conservative party in those days such as Lord Shaftesbury and Benjamin Disraeli fought the whole of their political careers to change—the values of the poorhouse.
The Prime Minister and the Secretary of State for Employment are the Gradgrind and Bounderby of modern Britain, and they glory in it. Most frightening of all in that interview by the Prime Minister was what she said about consensus. She said:
There would have been no great prophets, no great philosophers in life, no great things to follow, if those who propounded the views had gone out and said 'Brothers, follow me, I believe in consensus.'" No Brian, no.'
Jesus Christ was a great prophet. People followed him because he believed in brotherhood, equality and consensus—all the values that the Government reject. Even if I reduce the argument to the level of economics, nobody on the Government Front Bench can deny that the key to the success of the Japanese economy is consensus, which is institutionalised in the whole of Japanese society.

Mr. Raymond Whitney: rose——

Mr. Healey: There is no hope for the world unless its Governments can get together, sink their differences and compromise for the sake of collective action. This is as true in economic affairs as it is in political affairs and in defence and disarmament affairs. We believe that there is no hope of a search for that consensus or co-operation under this Government. That is why we ask the House to support our amendment tonight.

The Chief Secretary to the Treasury (Mr. Leon Brittan): When I think of the vicissitudes in the career of the right hon. Member for Leeds, East (Mr. Healey), when I look at the panoply of divided talents on the Labour Benches and consider some of the things that have been said by right hon. Gentlemen about one another, the one thing that I am not prepared to do is to listen to lectures from the right hon. Gentleman about consensus. I cannot think of anyone less qualified to talk about it.
Until the right hon. Gentleman's pious last few words, we had witnessed today a rather unusual debate on economic policy. The international scene has been concentrated on to a much greater extent than in most of our debates. We have heard speeches from some of the most distinguished and experienced Members of the House on international issues—my right hon. Friends the Members for Sidcup (Mr. Heath) and for Taunton (Mr. du Cann), and my right hon. and learned Friend the Member for Hexham (Mr. Rippon) and the right hon. Member for Glasgow, Hillhead (Mr. Jenkins), to name but a few.
It is right that a wider scene should be set even when we are debating our domestic financial controversies. The anxieties that have been expressed about the international scene are those to which we should give vent.
I hope that those who have contributed to the debate will forgive me if I do not consider in detail every one of the many constructive proposals that have been put forward. However, I assure them that my colleagues and I will wish to consider carefully what has been said.
Three aspects of the international economic scene spring to mind—our policies, the use of institutions and the reform of institutions. The stress that has been laid in the debate on the need for international co-operation is right. However, less than justice has been done to the co-operation at the many international meetings of finance Ministers and others in recent years.
The right hon. Member for Leeds, East is right to say that a consensus, to use his word, has emerged and that that consensus has centred largely on the Government's policies. The communiqué that was issued yesterday at the Group of Ten meeting states:
In addressing the world economic situation, the Ministers and Governors welcomed recent successes in the fight against inflation and prospects for further progress. They looked towards sound monetary and fiscal policies and appropriate moderation in the growth in incomes to encourage lower interest rates, expanding trade, higher employment and durable economic strength.
The right hon. Gentleman has sought to suggest that the French Government seek to persuade the international community to follow different policies. He has sought to suggest also that prominent voices in the American Administration are calling for different policies. However, the statement which I have quoted was agreed by all members of the Group of Ten, including France and the United States, but yesterday. It was right to do so because in following the policies commended by the communiqué and advocated by the Government, the countries of the Group of Ten are dealing with the problem of inflation and its consequences on a world scale in the same way that we have attempted to deal with the problem on a domestic scale.
The process of adjustment involved in pursuit of the recommendations set out in the communiqué will deal, if followed through, with one of the problems that has been rightly identified by a number of those who have participated in the debate. That is the problem of exchange rate instability. There is no doubt that if policies converge in the direction that the Group of Ten identified and commended, there will be less exchange rate instability. There is equally no doubt that the instability has been damaging. I agree with the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) about that.
I do not agree with the belief that has been expressed in some quarters in the House that what is called for is not world consensus on policies but massive world reflation. It is right that if reflation took place worldwide it might be less immediately catastrophic than if it were unilateral. However, I do not believe that such policies, even worldwide, would deal with the problem. It is precisely the growth of inflation and the extent of borrowing that have led us into the present international difficulties. Therefore, I do not believe that action to bring about world reflation would deal with the problem. However, that does not mean that we can do nothing, should do nothing, have


done or will do nothing. The reverse is true. There is considerable scope for the use of institutions and for action. We still have an international financial system.
Although it is tempting, and although there is a case for advocating substantial changes in the world's financial system at such a time as the present, let us not forget that if we are concerned about the immediacy of the problems and the need for urgent action, the use of existing institutions is far more likely to produce quick results than any grandiose scheme for creating new institutions.
My right hon. and learned Friend the Chancellor made it clear today when such institutions were to be used. He referred to a major announcement that was made yesterday—not next week. It is a substantial step forward to obtain from the Group of Ten an agreement to extend the general agreement to borrow from 6·4 billion SDRs to 17 billion SDRs. That is a substantial increase. Right hon. and hon. Members who have spoken have been good enough to accept that that is a substantial step forward.
As long ago as the meeting in Toronto, my right hon. and learned Friend the Chancellor made it clear that he was in favour of another major measure that would assist the world in dealing with international difficulties—the extension of the IMF quotas by at least 50 per cent. He continues to work in that direction in his capacity as chairman of the interim committee of the International Monetary Fund.
There is convergence in the right direction in relation to policies. There is substantial movement in the right direction in the use of financial institutions. However, I readily concede that if we are talking about the reform of institutions or the creation of a new Bretton Woods agreement, we have not taken steps in that direction. To attempt to do that in circumstances that have changed so dramatically and radically since the institutions of the immediate post-war period were set up would not be the best way to cope with the present serious international problems. We should make use of the institutions that we have.

Mr. Rippon: Is my right hon. and learned Friend saying that the Government completely reject the initiative that was taken by the United States Secretary of the Treasury calling for a Bretton Woods type of conference? Of course the circumstances are different. That is why we need such a conference.

Mr. Brittan: There is no agreement between the British Government and the United States Government on these matters. No initiative has been taken by the United States Government that has been rejected by the present Government. I welcome the opportunity to reassure my right hon. and learned Friend on that score. [Interruption.] If he is not reassured yet—as the hon. Member for Blackburn (Mr. Straw) appears anxious to show that he is not—I shall take the opportunity later to continue the process of reassurance.

Dr. Bray: Will the Minister give way?

Mr. Brittan: No. If I may proceed——

Dr. Bray: rose——

Mr. Brittan: —to what should be of interest to the hon. Member for Motherwell and Wishaw (Dr. Bray), because the motion was put down by the official Opposition and it deserves at least some attention—

Dr. Bray: rose——

Mr. Brittan: The motion which is the centre of this debate condemns the Government for high interest and exchange rates and blames those for high unemployment. The main part of my remarks should be addressed to the motion.
That is what the motion states, but its real implication is that we should allow inflation to rip. The motion and the arguments in support of it ignore the consequences of a serious and concerted attempt to lower the exchange and interest rates. The central thrust of our policy has been to give primacy to reducing inflation. Only by reducing inflation can we have sustainable growth and a real and lasting reduction in unemployment.
The right hon. Member for Stepney and Poplar (Mr. Shore) was, to put it extremely mildly, grossly unfair to my right hon. Friend the Prime Minister in quoting from her speech, because he tried to present her as heartless and uncaring—[HON. MEMBERS: "Hear, hear."] Hon. Members are entitled to their views, but they are not entitled to hold them on the basis of a distortion of what my right hon. Friend said. The right hon. Gentleman complained that my right hon. Friend the Prime Minister said in her speech at St. Lawrence Jewry that inflation was an evil and that unemployment was a problem. The right hon. Gentleman hung much of his speech on the heartlessness aspect, about which we have heard much.
However, the right hon. Gentleman did not quote the statement of my right hon. Friend—I am reading from the same speech, not too far away from the passage relied upon by the right hon. Gentleman—that
I cannot conceal that of all the difficulties that I face unemployment concerns me most of all.
[HON. MEMBERS: "Hear, hear".] So much for the standard of fairness that the right hon. Gentleman brings to the consideration of such matters.
The reason for pursuing inflation as the primary objective is precisely because the curbing of inflation is a necessary condition for dealing with unemployment and because today's unemployment is largely the product of yesterday's inflation. An attempt to tackle unemployment directly by a process of reflation would very shortly be counterproductive. It does not lie in the mouths of Opposition Members to make accusations of heartlessness and lack of care about a Government who have followed sound financial policies and who have, within those policies, so ordered their priorities and expenditure as to introduce a massive youth training scheme, a job release scheme, job splitting and the young workers' scheme. Even within sound fiscal policies, primacy is given to assisting those who are unemployed through no fault of their own. [HON. MEMBERS: "It is your fault."] Right hon. and hon. Members might accept, in considering inflation and the implication of our policies on interest and exchange rates, that inflation does not fall by magic. It is a tough business and there are no easy alternatives. The policies criticised by Opposition Members were, and are, to reduce inflation and to keep it down. Unless that is done, there are no prospects for employment, however much the hon. Member for Blackburn may seek them.
We could have tried to engineer a lower exchange rate and lower interest rates by throwing fiscal and financial prudence to the wind, although in today's world it is very doubtful whether we should have succeeded in achieving lower exchange and interest rates had we embarked on that attempt. Had we embarked on it, it would have meant


abandoning the policies needed to fight inflation. That is not a price that we were or are prepared to pay. To have paid it would not have brought about sustainable growth and a real improvement in employment prospects—quite the reverse.
It has been charged that the exchange rate was and may still be overvalued. What does that mean? The effective exchange rate now is lower than it was when we took office. What Opposition Members mean is that it has not fallen enough to offset the rise in our domestic costs, which was, until recently, way in excess of that experienced in other major countries.
Why has that been the cause? Part of the reason lies in the external events in the rest of the world and in the oil market, but the major reason has been that financial markets have believed that we mean business on inflation, while other markets, such as the labour market, have taken longer to adjust. Wages went on rising rapidly in 1979ߝ80, with the result that competitiveness deteriorated. That put severe pressure on industry, but it helped to speed the fall in inflation by spurring firms to be more efficient, by encouraging greater realism in pay bargaining and by holding down import costs.
The initial rise in the exchange rate was the inevitable consequence of the policies designed to reduce inflation. Of course, it would have been much less painful if the increases in domestic costs had come down earlier and faster than they did. They are now coming down and our competitiveness is improving. Unit labour costs grew by 5½ per cent. last year—a rate below that of most of our major competitors. A policy designed to hold down the value of sterling and interest rates artificially would have undermined the attempt to reduce inflation and given a direct boost to domestic costs. It would have involved massive intervention in the foreign exchange markets or accelerating monetary growth.

Mr. Shore: The right hon. and learned Gentleman has told the House how, in his view, the country came to be so uncompetitive, and to lose its competitiveness during the first two years of Conservative Government. Will he now answer the question put to him by virtually every hon. Member who has spoken today, and say whether he believes that the depreciation of sterling by about 12 per cent. in the past two months is a help to the restoration of our competitiveness? Does he agree with that, and does he look upon that as a substantial contribution to restoring that lost competitiveness—yes or no?

Mr. Brittan: It is not possible or desirable for Governments to bring down the exchange rate to increase competitiveness. [Interruption.] The right hon. Gentleman asked me a question and must wait for the answer. If he does not want to hear the answer, he should not ask the question.
It is right that in the short term it is easier for British industry to export than it was before this occurred. However, as I have made clear, I do not believe that, in any permanent sense, a fall in the exchange rate helps. Between 1972 and 1975, the exchange rate fell by 20 per cent., but competitiveness was no better in 1975 than it had been in 1972. There was a short-term boost and a short-term benefit that was soon dissipated in increased costs.
Even if forcing the exchange rate down made sense, I should seriously ask the question, would it have been possible? Success in manipulating the exchange rate in the face of strong market pressures either way is by no means something that can be guaranteed, as the right hon. Member for Leeds, East should understand. In 1977, he tried to prevent an appreciation of sterling. Intervention was massive. The right hon. Gentleman could not have done more if he had tried. Interest rates were cut from 14½ per cent. to 5 per cent. However, the attempt failed and had to be abandoned. The effect was a monetary explosion with M1 growing by 25 per cent.

Mr. Shore: There are costs and benefits from every major change in policy. [HON. MEMBERS: "Oh".] Bless my soul. If that is a surprise to Conservative Members, they have been living in a very sheltered environment in the past few years. Of course there are costs and benefits. Having weighed them up and knowing, as my right hon. Friend the Member for Leeds, East (Mr. Healey) recently explained, that exchange rates are responsive to interest rates, on balance does the right hon. Gentleman wish to keep the present level of the exchange rate or is it his Government's policy to use interest rates to drive it back up again? Let us have an answer.

Mr. Brittan: I have answered that question; the right hon. Gentleman knows that perfectly well. I said that I do not believe that it is right for Governments to attempt to force the exchange rate up or down to a substantial extent. In answer to the question that the right hon. Gentleman was so anxious to have answered, I said candidly and honestly that there were certain benefits to be got from what has occurred, and certain disadvantages. In his most recent intervention the right hon. Gentleman has been good enough to concede that there is a balance in these matters. That is exactly what I have said. It will not be surprising to him if I choose to place the balance somewhat differently from where he places it.
In his motion the right hon. Gentleman goes on to deal with interest rates. They also play a vital role in securing monetary conditions that will bring down inflation. The policy of monetary restraint is bound to involve in the first phase high interest rates. That is why interest rates have been high all round the world. However, as monetary policy has its effect, so inflation comes down and interest rates with it. During 1980 interest rates reached about 16½ per cent., but they now stand at 11 per cent.
However, it is absolutely essential to appreciate that in such a complex process it can never be an absolutely smooth linear progression. In the summer of 1981 interest rates fell to 12 per cent., but rose sharply in the autumn. As my right hon. Friend the Prime Minister said in her interview, and as my right hon. and learned Friend the Chancellor of the Exchequer said today, because the central thrust of our policy was right and clear, we were able to overcome that setback. We were following a responsible fiscal policy and cutting back on our borrowing requirement. We were not borrowing more and spending more, as the right hon. Gentleman advocates.
The result was that by November 1982 interest rates were down to 9 per cent. Since then—

Mr. Straw: They have gone up 2 per cent.

Mr. Brittan: The hon. Gentleman is perceptive to observe last week's events, as he always is. Since then,


of course, there has been a setback that has triggered off the debate. However, as before, getting the fundamentals right will enable us to continue the downward trend in time.
However, getting interest rates down has implications for fiscal policy, to which the right hon. Gentleman pays no heed. If one wants to avoid putting undue upward pressure on interest rates, it is necessary to limit the level of borrowing. It is dangerous nonsense to suppose, as does the right hon. Gentleman in his package, that the Government can decree that interest rates should be X per cent. lower and at the same time massively increase the Budget deficit and still hope to restrain inflation. Those were the financial policies of the late King Canute. They would be no more successful if followed in this country today than they were at that time.
However, the Opposition have a single, simple answer to the problems. One way to square the circle—the way put forward by the right hon. Gentleman in his meretricious programme—is to restore exchange controls. It seems strange to me that the reintroduction of that which had already become an anachronism when it was abolished should be regarded as any kind of solution to the problems of the 1980s.
Exchange controls were introduced at the beginning of the war to make gold and foreign currency available for the war effort. The huge growth in trade flows and international capital markets since the 1960s made them increasingly ineffective. The move to floating exchange rates and the effect of North Sea oil on our balance of payments made them quite irrelevant.

Mr. Shore: rose——

Mr. Brittan: The exchange control component was an important part of the right hon. Gentleman's package. I am sure he would want me to do justice to it.

Mr. Shore: rose——

Mr. Brittan: The right hon. Gentleman has had three bites of the cherry. He must allow me to explain why exchange controls would be quite useless as any sort of economic bulwark to prevent the natural consequences of his foolish policies. Today there are potentially vast movements of non-resident funds, which are quite outside our control. The introduction of exchange control would do nothing whatsoever to affect such movements.

Mr. Straw: rose——

Mr. Brittan: Exchange control, if introduced, would not control the leads and lags on trade payment. In case that sounds a technical explanation of a phenomenon, I remind the right hon. Gentleman of the impact that can have on the flows. One month's movement could mean a shift across the exchanges of £10 billion. The experiences of the Opposition in 1967 and 1976 took place when the full panoply of exchange control was in operation. Not one official left the Bank of England and not one step had been taken to dismantle those controls. They would do nothing at all to give protection to that Government and their economic policies. The market had lost confidence in the then Government and that was reflected in the exchange rates.

Mr. Straw: rose——

Mr. Brittan: With today's communications and sophisticated markets, no control regime can for long

prevent movements of funds in and out of a major international currency such as sterling. When we abolished exchange controls in 1979, we removed a bureaucracy of 750 people in the public sector and an administrative burden on industry that had become ineffective and without purpose. The last prop of the right hon. Gentleman's policy collapses. It is apparently impossible to square the circle.

Mr. Shore: rose——

Mr. Brittan: The exchange rate and interest rate policies that the right hon. Gentleman is calling upon us to follow would inexorably lead to inflation. The exchange control route that he seeks to present as an alibi and excuse would get him nowhere.
The final prop of the programme upon which the simulation depends disappears, because the right hon. Gentleman would never have the guts to face the trade union movement and ask it for the incomes policy without which his entire programme is a tissue of rubbish.
The right hon. Member for Stepney and Poplar has had cold feet recently. He does not like the reference to the 30 per cent. devaluation. It is only an illustration—a simulation. The same can be said of the projected increase in output and employment that he put forward. That, too, is no more than an illustration which does not show up in real life.
I therefore commend the amendment to the House and ask hon. Members to reject the motion.

Question put, That the original words stand part of the Question:—

The House divided: Ayes 218, Noes 334.

Division No. 46]
[10 pm


AYES


Abse, Leo
Dalyell, Tam


Adams, Allen
Davidson, Arthur


Allaun, Frank
Davies, Rt Hon Denzil (L'lli)


Anderson, Donald
Davis, Clinton (Hackney C)


Archer, Rt Hon Peter
Davis, Terry (B'ham, Stechf'd)


Ashley, Rt Hon Jack
Deakins, Eric


Ashton, Joe
Dean, Joseph (Leeds West)


Atkinson, N. (H'gey,)
Dewar, Donald


Barnett, Guy (Greenwich)
Dixon, Donald


Benn, Rt Hon Tony
Dobson, Frank


Bennett, Andrew(St'kp'tN)
Dormand, Jack


Booth, Rt Hon Albert
Douglas, Dick


Bottomley, Rt Hon A. (M'b'ro)
Dubs, Alfred


Bray, Dr Jeremy
Dunnett, Jack


Brown, Hugh D. (Provan)
Dunwoody, Hon Mrs G.


Brown, R. C. (N'castle W)
Eastham, Ken


Brown, Ron (E'burgh, Leith)
Edwards, R. (W'hampt'n S E)


Buchan, Norman
Ellis, R. (NE D'bysh're)


Callaghan, Rt Hon J.
Ennals, Rt Hon David


Campbell, Ian
Evans, Ioan (Aberdare)


Campbell-Savours, Dale
Evans, John (Newton)


Canavan, Dennis
Faulds, Andrew


Cant, R. B.
Field, Frank


Carter-Jones, Lewis
Fitch, Alan


Clark, Dr David (S Shields)
Flannery, Martin


Clarke, Thomas (C'b'dge, A'rie)
Foot, Rt Hon Michael



Ford, Ben


Cocks, Rt Hon M. (B'stol S)
Forrester, John


Cohen, Stanley
Foster, Derek


Concannon, Rt Hon J. D.
Foulkes, George


Conlan, Bernard
Fraser, J. (Lamb'th, N'w'd)


Cook, Robin F.
Freeson, Rt Hon Reginald


Cowans, Harry
Garrett, John (Norwich S)


Cox, T. (W'dsw'th, Toot'g)
Garrett, W. E. (Wallsend)


Craigen, J. M. (G'gow, M'hill)
George, Bruce


Crowther, Stan
Golding, John


Cryer, Bob
Gourlay, Harry


Cunningham, Dr J. (W'h'n)
Graham, Ted






Hamilton, James (Bothwell)
Pendry, Tom


Hamilton, W. W. (C'tral Fife)
Powell, Raymond (Ogmore)


Hardy, Peter
Prescott, John


Harman, Harriet (Peckham)
Price, C. (Lewisham W)


Harrison, Rt Hon Walter
Race, Reg


Hattersley, Rt Hon Roy
Radice, Giles


Haynes, Frank
Rees, Rt Hon M (Leeds S)


Healey, Rt Hon Denis
Richardson, Jo


Heffer, Eric S.
Roberts, Albert (Normanton)


Hogg, N. (E Dunb't'nshire)
Roberts, Allan (Bootle)


Holland, S. (L'b'th, Vauxh'll)
Roberts, Ernest (Hackney N)


Home Robertson, John
Roberts, Gwilym (Cannock)


Homewood, William
Robertson, George


Hooley, Frank
Robinson, G. (Coventry NW)


Howell, Rt Hon D.
Rooker, J. W.


Howells, Geraint
Ross, Ernest (Dundee West)


Hoyle, Douglas
Rowlands, Ted


Huckfield, Les
Ryman, John


Hughes, Mark (Durham)
Sever, John


Hughes, Robert (Aberdeen N)
Sheerman, Barry


Hughes, Roy (Newport)
Sheldon, Rt Hon R.


Janner, Hon Greville
Shore, Rt Hon Peter


Jay, Rt Hon Douglas
Short, Mrs Renée


John, Brynmor
Silkin, Rt Hon J. (Deptford)


Johnson, James (Hull West)
Silkin, Rt Hon S. C. (Dulwich)


Johnson, Walter (Derby S)
Silverman, Julius


Jones, Rt Hon Alec (Rh'dda)
Skinner, Dennis


Kaufman, Rt Hon Gerald
Smith, Rt Hon J. (N Lanark)


Kerr, Russell
Snape, Peter


Kilroy-Silk, Robert
Soley, Clive


Kinnock, Neil
Spearing, Nigel


Lambie, David
Spellar, John Francis (B'ham)


Lamond, James
Spriggs, Leslie


Leadbitter, Ted
Stallard, A. W.


Leighton, Ronald
Stewart, Rt Hon D. (W Isles)


Lewis, Arthur (N'ham NW)
Stoddart, David


Lewis, Ron (Carlisle)
Stott, Roger


Litherland, Robert
Strang, Gavin


Lofthouse, Geoffrey
Straw, Jack


Lyon, Alexander (York)
Summerskill, Hon Dr Shirley


McCartney, Hugh
Taylor, Mrs Ann (Bolton W)


McDonald, Dr Oonagh
Thomas, Dafydd (Merioneth)


McElhone, Mrs Helen
Thomas, Dr R. (Carmarthen)


McGuire, Michael (Ince)
Thorne, Stan (Preston South)


McKay, Allen (Penistone)
Tilley, John


McKelvey, William
Tinn, James


MacKenzie, Rt Hon Gregor
Torney, Tom


McNamara, Kevin
Varley, Rt Hon Eric G.


McWilliam, John
Wainwright, E. (Dearne V)


Marks, Kenneth
Walker, Rt Hon H. (D'caster)


Marshall, D (G'gow S'ton)
Wardell, Gareth


Marshall, Dr Edmund (Goole)
Watkins, David


Marshall, Jim (Leicester S)
Weetch, Ken


Martin, M (G'gow S'burn)
Welsh, Michael


Mason, Rt Hon Roy
White, Frank R.


Maxton, John
White, J. (G'gow Pollok)


Maynard, Miss Joan
Whitehead, Phillip


Meacher, Michael
Whitlock, William


Mikardo, Ian
Wigley, Dafydd


Millan, Rt Hon Bruce
Willey, Rt Hon Frederick


Miller, Dr M. S. (E Kilbride)
Williams, Rt Hon A. (S'sea W)


Mitchell, Austin (Grimsby)
Wilson, Gordon (Dundee E)


Morris, Rt Hon C. (O'shaw)
Wilson, Rt Hon Sir H. (H'ton)


Morris, Rt Hon J. (Aberavon)
Wilson, William (C'try SE)


Moyle, Rt Hon Roland
Winnick, David


Newens, Stanley
Woodall, Alec


Oakes, Rt Hon Gordon
Woolmer, Kenneth


O'Neill, Martin
Wright, Sheila


Orme, Rt Hon Stanley
Young, David (Bolton E)


Palmer, Arthur



Park, George
Tellers for the Ayes:


Parker, John
Mr. George Morton and


Parry, Robert
Mr. Lawrence Cunliffe.


Pavitt, Laurie



NOES


Adley, Robert
Alton, David


Aitken, Jonathan
Amery, Rt Hon Julian


Alexander, Richard
Ancram, Michael


Alison, Rt Hon Michael
Arnold, Tom





Aspinwall, Jack
Faith, Mrs Sheila


Atkins, Rt Hon H. (S'thorne)
Farr, John


Atkins, Robert (Preston N)
Fenner, Mrs Peggy


Atkinson, David (B'm'th,E)
Finsberg, Geoffrey


Baker, Kenneth (St.M'bone)
Fisher, Sir Nigel


Baker, Nicholas (N Dorset)
Fletcher, A. (Ed'nb'gh N)


Banks, Robert
Fookes, Miss Janet


Beaumont-Dark, Anthony
Fowler, Rt Hon Norman


Beith, A. J.
Fox, Marcus


Bendall, Vivian
Fraser, Rt Hon Sir Hugh


Bennett, Sir Frederic (T'bay)
Freud, Clement


Benyon, W. (Buckingham)
Gardiner, George (Reigate)


Best, Keith
Gardner, Sir Edward


Bevan, David Gilroy
Garel-Jones, Tristan


Biffen, Rt Hon John
Gilmour, Rt Hon Sir Ian


Biggs-Davison, Sir John
Ginsburg, David


Blackburn, John
Glyn, Dr Alan


Blaker, Peter
Goodhart, Sir Philip


Body, Richard
Goodlad, Alastair


Bonsor, Sir Nicholas
Gorst, John


Boscawen, Hon Robert
Gow, Ian


Bottomley, Peter (W'wich W)
Gower, Sir Raymond


Bowden, Andrew
Grant, Sir Anthony


Boyson, Dr Rhodes
Grant, John (Islington C)


Braine, Sir Bernard
Gray, Rt Hon Hamish


Bright, Graham
Greenway, Harry


Brinton, Tim
Grieve, Percy


Brittan, Rt. Hon. Leon
Griffiths, E. (B'y St. Edm'ds)


Brooke, Hon Peter
Griffiths, Peter (Portsm'th N)


Brotherton, Michael
Grist, Ian


Brown, Michael (Brigg &amp; Sc'n)
Gummer, John Selwyn


Brown, Ronald W. (H'ckn'y S)
Hamilton, Hon A.


Browne, John (Winchester)
Hamilton, Michael (Salisbury)


Bruce-Gardyne, John
Hampson, Dr Keith


Bryan, Sir Paul
Hannam,John


Buchanan-Smith, Rt. Hon. A.
Haselhurst, Alan


Buck, Antony
Hastings, Stephen


Budgen, Nick
Havers, Rt Hon Sir Michael


Bulmer, Esmond
Hawkins, Sir Paul


Butcher, John
Hayhoe, Barney


Butler, Hon Adam
Heath, Rt Hon Edward


Carlisle, John (Luton West)
Heddle, John


Carlisle, Kenneth (Lincoln)
Henderson, Barry


Carlisle, Rt Hon M. (R'c'n)
Heseltine, Rt Hon Michael


Cartwright, John
Higgins, Rt Hon Terence L.


Chalker, Mrs. Lynda
Hill, James


Channon, Rt. Hon. Paul
Hogg, Hon Douglas (Gr'th'm)


Chapman, Sydney
Holland, Philip (Carlton)


Churchill, W. S.
Hooson, Tom


Clark, Hon A. (Plym'th, S'n)
Horam, John


Clark, Sir W. (Croydon S)
Hordern, Peter


Clarke, Kenneth (Rushcliffe)
Howe, Rt Hon Sir Geoffrey


Clegg, Sir Walter
Howell, Rt Hon D. (G'ldf'd)


Cockeram, Eric
Howell, Ralph (N Norfolk)


Colvin, Michael
Hudson Davies, Gwilym E.


Cope, John
Hunt, David (Wirral)


Corrie, John
Hunt, John (Ravensbourne)


Costain, Sir Albert
Hurd, Rt Hon Douglas


Cranborne, Viscount
Irvine, Rt Hon Bryant Godman


Crawshaw, Richard
Irving, Charles (Cheltenham)


Critchley, Julian
Jenkins, Rt Hon Roy (Hillh'd)


Crouch, David
Jessel, Toby


Cunningham, G. (Islington S)
Johnson Smith, Sir Geoffrey


Dickens, Geoffrey
Johnston, Russell (Inverness)


Dorrell, Stephen
Jopling, Rt Hon Michael


Douglas-Hamilton, Lord J.
Joseph, Rt Hon Sir Keith


du Cann, Rt Hon Edward
Kaberry, Sir Donald


Dunlop, John
Kellett-Bowman, Mrs Elaine


Dunn, Robert (Dartford)
Kershaw, Sir Anthony


Durant, Tony
Kimball, Sir Marcus


Dykes, Hugh
King, Rt Hon Tom


Eden, Rt Hon Sir John
Knight, Mrs Jill


Edwards, Rt Hon N. (P'broke)
Knox, David


Eggar, Tim
Lamont, Norman


Elliott, Sir William
Lang, Ian


Ellis, Tom (Wrexham)
Latham, Michael


Emery, Sir Peter
Lawrence, Ivan


Eyre, Reginald
Lawson, Rt Hon Nigel


Fairbairn, Nicholas
Lee, John


Fairgrieve, Sir Russell
Le Marchant, Spencer






Lennox-Boyd, Hon Mark
Renton, Tim


Lester, Jim (Beeston)
Rhodes James, Robert


Lewis, Sir Kenneth (Rutland)
Rhys Williams, Sir Brandon


Lloyd, Ian (Havant &amp; W'loo)
Ridley, Hon Nicholas


Lloyd, Peter (Fareham)
Rippon, Rt Hon Geoffrey


Loveridge, John
Roberts, M. (Cardiff NW)


Luce, Richard
Roberts, Wyn (Conway)


Lyell, Nicholas
Roper, John


Mabon, Rt Hon Dr J. Dickson
Ross, Stephen (Isle of Wight)


McCrindle, Robert
Rossi, Hugh


Macfarlane, Neil
Rost, Peter


MacKay, John (Argyll)
Royle, Sir Anthony


Maclennan, Robert
Rumbold, Mrs A. C. R.


McNair-Wilson, M. (N'bury)
Sainsbury, Hon Timothy


McNair-Wilson, P. (New F'st)
St. John-Stevas, Rt Hon N.


McNally, Thomas
Sandelson, Neville


McQuarrie, Albert
Scott, Nicholas


Madel, David
Shaw, Giles (Pudsey)


Magee, Bryan
Shaw, Sir Michael (Scarb')


Major, John
Shelton, William (Streatham)


Marland, Paul
Shepherd, Colin (Hereford)


Marten, Rt Hon Neil
Shepherd, Richard


Mates, Michael
Shersby, Michael


Maude, Rt Hon Sir Angus
Silvester, Fred


Mawby, Ray
Sims, Roger


Mawhinney, Dr Brian
Skeet, T. H. H.


Maxwell-Hyslop, Robin
Smith, Tim (Beaconsfield)


Mayhew, Patrick
Speed, Keith


Mellor, David
Speller, Tony


Meyer, Sir Anthony
Spence, John


Miller, Hal (B'grove)
Spicer, Jim (West Dorset)


Mills, Iain (Meriden)
Spicer, Michael (S Worcs)


Mills, Sir Peter (West Devon)
Sproat, Iain


Miscampbell, Norman
Squire, Robin


Mitchell, R. C. (Soton Itchen)
Stainton, Keith


Moate, Roger
Stanbrook, Ivor


Molyneaux, James
Stanley, John


Monro, Sir Hector
Steel, Rt Hon David


Montgomery, Fergus
Steen, Anthony


Moore, John
Stevens, Martin


Morgan, Geraint
Stewart, A. (E Renfrewshire)


Morrison, Hon P. (Chester)
Stewart, Ian (Hitchin)


Mudd, David
Stokes, John


Murphy, Christopher
Stradling Thomas, J.


Myles, David
Taylor, Teddy (S'end E)


Neale, Gerrard
Tebbit, Rt Hon Norman


Nelson, Anthony
Temple-Morris, Peter


Neubert, Michael
Thatcher, Rt Hon Mrs M.


Newton, Tony
Thomas, Jeffrey (Abertillery)


Normanton, Tom
Thomas, Mike (Newcastle E)


Nott, Rt Hon Sir John
Thomas, Rt Hon Peter


Ogden, Eric
Thompson, Donald


Onslow, Cranley
Thorne, Neil (Ilford South)


Oppenheim, Rt Hon Mrs S.
Thornton, Malcolm


Osborn, John
Townend, John (Bridlington)


Owen, Rt Hon Dr David
Townsend, Cyril D, (B'heath)


Page, John (Harrow, West)
Trippier, David


Page, Richard (SW Herts)
Trotter, Neville


Parkinson, Rt Hon Cecil
van Straubenzee, Sir W.


Parris, Matthew
Vaughan, Dr Gerard


Patten, John (Oxford)
Viggers, Peter


Pattie, Geoffrey
Waddington, David


Pawsey, James
Wainwright, R. (Colne V)


Penhaligon, David
Wakeham, John


Percival, Sir Ian
Waldegrave, Hon William


Peyton, Rt Hon John
Walker, Rt Hon P. (W'cester)


Pink, R. Bonner
Walker, B. (Perth)


Pitt, William Henry
Walker-Smith, Rt Hon Sir D.


Pollock, Alexander
Waller, Gary


Porter, Barry
Walters, Dennis


Powell, Rt Hon J.E. (S Down)
Ward, John


Prentice, Rt Hon Reg
Warren, Kenneth


Price, Sir David (Eastleigh)
Watson, John


Prior, Rt Hon James
Wellbeloved, James


Proctor, K. Harvey
Wells, Bowen


Pym, Rt Hon Francis
Wells, John (Maidstone)


Raison, Rt Hon Timothy
Wheeler, John


Rathbone, Tim
Whitelaw, Rt Hon William


Rees, Peter (Dover and Deal)
Whitney, Raymond


Rees-Davies, W. R.
Wilkinson, John





Williams, D.(Montgomery)
Younger, Rt Hon George


Williams, Rt Hon Mrs (Crosby)



Winterton, Nicholas
Tellers for the Noes:


Wolfson, Mark
Mr. Carol Mathers and


Woodall, Alec
Mr. Anthony Berry.


Young, Sir George (Acton)

Question accordingly negatived.

Question, That the proposed words be there added, put forthwith pursuant to Standing Order No. 32 (Questions on amendments):—

The House divided: Ayes 298, Noes 249.

Division No. 47]
[10.12 pm


AYES


Adley, Robert
Crouch, David


Aitken, Jonathan
Dickens, Geoffrey


Alexander, Richard
Dorrell, Stephen


Alison, Rt Hon Michael
Douglas-Hamilton, Lord J.


Amery, Rt Hon Julian
du Cann, Rt Hon Edward


Ancram, Michael
Dunn, Robert (Dartford)


Arnold, Tom
Durant, Tony


Aspinwall, Jack
Dykes, Hugh


Atkins, Rt Hon H. (S'thorne)
Eden, Rt Hon Sir John


Atkins, Robert (Preston N)
Edwards, Rt Hon N. (P'broke)


Atkinson, David (B'm'th, E)
Eggar, Tim


Baker, Kenneth(St.M'bone)
Elliott, Sir William


Baker, Nicholas (N Dorset)
Emery, Sir Peter


Banks, Robert
Eyre, Reginald


Beaumont-Dark, Anthony
Fairbairn, Nicholas


Bendall, Vivian
Fairgrieve, Sir Russell


Bennett, Sir Frederic (T'bay)
Faith, Mrs Sheila


Benyon, W. (Buckingham)
Farr, John


Best, Keith
Fenner, Mrs Peggy


Bevan, David Gilroy
Finsberg, Geoffrey


Biffen, Rt Hon John
Fisher, Sir Nigel


Biggs-Davison, Sir John
Fletcher, A. (Ed'nb'gh N)


Blackburn, John
Fookes, Miss Janet


Blaker, Peter
Fowler, Rt Hon Norman


Body, Richard
Fox, Marcus


Bonsor, Sir Nicholas
Fraser, Rt Hon Sir Hugh


Boscawen, Hon Robert
Gardiner, George (Reigate)


Bottomley, Peter (W'wich W)
Gardner, Sir Edward


Bowden, Andrew
Garel-Jones, Tristan


Boyson, Dr Rhodes
Gilmour, Rt Hon Sir Ian


Braine, Sir Bernard
Glyn, Dr Alan


Bright, Graham
Goodhart, Sir Philip



Brinton, Tim
Goodlad, Alastair


Brittan, Rt. Hon. Leon
Gorst, John


Brooke, Hon Peter
Gow, Ian


Brotherton, Michael
Gower, Sir Raymond


Brown, Michael (Brigg &amp; Sc'n)
Grant, Sir Anthony


Browne, John (Winchester)
Gray, Rt Hon Hamish


Bruce-Gardyne, John
Greenway, Harry


Bryan, Sir Paul
Grieve, Percy


Buchanan-Smith, Rt. Hon. A.
Griffiths, E. (B'y St. Edm' ds)


Buck, Antony
Griffiths, Peter (Portsm'th N)


Budgen, Nick
Grist, Ian


Bulmer, Esmond
Gummer, John Selwyn


Butcher, John
Hamilton, Hon A.


Butler, Hon Adam
Hamilton, Michael (Salisbury)


Carlisle, John (Luton West)
Hampson, Dr Keith


Carlisle, Kenneth (Lincoln)
Hannam, John


Carlisle, Rt Hon M. (R'c'n)
Haselhurst, Alan


Chalker, Mrs. Lynda
Hastings, Stephen


Channon, Rt. Hon. Paul
Havers, Rt Hon Sir Michael


Chapman, Sydney
Hawkins, Sir Paul


Churchill, W. S.
Hayhoe, Barney


Clark, Hon A. (Plym'th, S'n)
Heath, Rt Hon Edward


Clark, Sir W. (Croydon S)
Heddle, John


Clarke, Kenneth (Rushcliffe)
Henderson, Barry


Clegg, Sir Walter
Heseltine, Rt Hon Michael


Cockeram, Eric
Higgins, Rt Hon Terence L.


Colvin, Michael
Hill, James


Cope, John
Hogg, Hon Douglas (Gr'th'm)


Corrie, John
Holland, Philip (Carlton)


Costain, Sir Albert
Hooson, Tom


Cranborne, Viscount
Hordern, Peter


Critchley, Julian
Howe, Rt Hon Sir Geoffrey






Howell, Rt Hon D. (G'ldf'd)
Pink, R. Bonner


Howell, Ralph (N Norfolk)
Pollock, Alexander


Hunt, David (Wirral)
Porter, Barry


Hunt, John (Ravensbourne)
Prentice, Rt Hon Reg


Hurd, Rt Hon Douglas
Price, Sir David (Eastleigh)


Irvine, Rt Hon Bryant Godman
Prior, Rt Hon James


Irving, Charles (Cheltenham)
Proctor, K. Harvey


Jessel, Toby
Pym, Rt Hon Francis


Jopling, Rt Hon Michael
Raison, Rt Hon Timothy


Joseph, Rt Hon Sir Keith
Rathbone, Tim


Kaberry, Sir Donald
Rees, Peter (Dover and Deal)


Kellett-Bowman, Mrs Elaine
Rees-Davies, W. R.


Kimball, Sir Marcus
Renton, Tim


King, Rt Hon Tom
Rhodes James, Robert


Knight, Mrs Jill
Rhys Williams, Sir Brandon


Knox, David
Ridley, Hon Nicholas


Lamont, Norman
Rippon, Rt Hon Geoffrey


Lang, Ian
Roberts, M. (Cardiff NW)


Latham, Michael
Roberts, Wyn (Conway)


Lawrence, Ivan
Rossi, Hugh


Lawson, Rt Hon Nigel
Rost, Peter


Lee, John
Royle, Sir Anthony


Le Marchant, Spencer
Rumbold, Mrs A. C. R.


Lennox-Boyd, Hon Mark
Sainsbury, Hon Timothy


Lester, Jim (Beeston)
St. John-Stevas, Rt Hon N.


Lewis, Sir Kenneth (Rutland)
Scott, Nicholas


Lloyd, Ian (Havant &amp; W'loo)
Shaw, Giles (Pudsey)


Lloyd, Peter (Fareham)
Shaw, Sir Michael (Scarb')


Loveridge, John
Shelton, William (Streatham)


Luce, Richard
Shepherd, Colin (Hereford)


Lyell, Nicholas
Shepherd, Richard


McCrindle, Robert
Shersby, Michael


Macfarlane, Neil
Silvester, Fred


MacKay, John (Argyll)
Sims, Roger


McNair-Wilson, M. (N'bury)
Skeet, T. H. H.


McNair-Wilson, P. (New F'st)
Smith, Tim (Beaconsfield)


McQuarrie, Albert
Speed, Keith


Madel, David
Speller, Tony


Major, John
Spence, John


Marland, Paul
Spicer, Jim (West Dorset)


Marten, Rt Hon Neil
Spicer, Michael (S Worcs)


Mates, Michael
Sproat, Iain


Maude, Rt Hon Sir Angus
Squire, Robin


Mawby, Ray
Stainton, Keith


Mawhinney, Dr Brian
Stanbrook, Ivor


Maxwell-Hyslop, Robin
Stanley, John


Mayhew, Patrick
Steen, Anthony


Mellor, David
Stevens, Martin


Meyer, Sir Anthony
Stewart, A. (E Renfrewshire)


Miller, Hal (B'grove)
Stewart, Ian (Hitchin)


Mills, Iain (Meriden)
Stokes, John


Mills, Sir Peter (West Devon)
Stradling Thomas, J.


Miscampbell, Norman
Taylor, Teddy (S'end E)


Moate, Roger
Tebbit, Rt Hon Norman


Monro, Sir Hector
Temple-Morris, Peter


Montgomery, Fergus
Thatcher, Rt Hon Mrs M.


Moore, John
Thomas, Rt Hon Peter


Morgan, Geraint
Thompson, Donald


Morrison, Hon P. (Chester)
Thorne, Neil (Ilford South)


Mudd, David
Thornton, Malcolm


Murphy, Christopher
Townend, John (Bridlington)


Myles, David
Townsend, Cyril D, (B'heath)


Neale, Gerrard
Trippier, David


Nelson, Anthony
Trotter, Neville


Neubert, Michael
van Straubenzee, Sir W.


Newton, Tony
Vaughan, Dr Gerard


Normanton, Tom
Viggers, Peter


Nott, Rt Hon Sir John
Waddington, David


Onslow, Cranley
Wakeham, John


Oppenheim, Rt Hon Mrs S.
Waldegrave, Hon William


Osborn, John
Walker, Rt Hon P. (W'cester)


Page, John (Harrow, West)
Walker, B. (Perth)


Page, Richard (SW Herts)
Walker-Smith, Rt Hon Sir D.


Parkinson, Rt Hon Cecil
Waller, Gary


Parris, Matthew
Walters, Dennis


Patten, John (Oxford)
Ward, John


Pattie, Geoffrey
Warren, Kenneth


Pawsey, James
Watson, John


Percival, Rt Hon Sir Ian
Wells, Bowen


Peyton, Rt Hon John
Wells, John (Maidstone)





Wheeler, John
Young, Sir George (Acton)


Whitelaw, Rt Hon William
Younger, Rt Hon George


Whitney, Raymond



Wilkinson, John
Tellers for the Ayes:


Williams, D. (Montgomery)
Mr. Carol Mather and


Winterton, Nicholas
Mr. Anthony Berry.


Wolfson, Mark



NOES


Abse, Leo
Ford, Ben


Adams, Allen
Forrester, John


Allaun, Frank
Foster, Derek


Alton, David
Foulkes, George


Anderson, Donald
Fraser, J. (Lamb'th, N'w'd)


Archer, Rt Hon Peter
Freeson, Rt Hon Reginald


Ashley, Rt Hon Jack
Freud, Clement


Ashton, Joe
Garrett, John (Norwich S)


Atkinson, N. (H'gey,)
Garrett, W. E. (Wallsend)


Barnett, Guy (Greenwich)
George, Bruce


Beith, A. J.
Ginsburg, David


Benn, Rt Hon Tony
Golding, John


Bennett, Andrew (St'kp't N)
Gourlay, Harry


Booth, Rt Hon Albert
Graham, Ted


Bottomley, Rt Hon A. (M'b'ro)
Grant, John (Islington C)


Bray, Dr Jeremy
Hamilton, James (Bothwell)


Brown, Hugh D. (Provan)
Hamilton, W. W. (C'tral Fife)


Brown, R. C. (N' castle W)
Hardy, Peter


Brown, Ronald W. (H'ckn'y S)
Harman, Harriet (Peckham)


Brown, Ron (E'burgh, Leith)
Harrison, Rt Hon Walter


Buchan, Norman
Hattersley, Rt Hon Roy


Callaghan, Rt Hon J.
Haynes, Frank


Campbell, Ian
Healey, Rt Hon Denis


Campbell-Savours, Dale
Heffer, Eric S.


Canavan, Dennis
Hogg, N. (E Dunb't'nshire)


Cant, R. B.
Holland, S. (L'b'th, Vauxh'll)


Carter-Jones, Lewis
Home Robertson, John


Cartwright, John
Homewood, William


Clark, Dr David (S Shields)
Hooley, Frank


Clarke, Thomas (C'b'dge, A'rie)
Horam, John


Cocks, Rt Hon M. (B'stol S)
Howell, Rt Hon D.


Cohen, Stanley
Howells, Geraint


Concannon, Rt Hon J. D.
Hoyle, Douglas


Conlan, Bernard
Huckfield, Les


Cook, Robin F.
Hudson Davies, Gwilym E.


Cowans, Harry
Hughes, Mark (Durham)


Cox, T. (W'dsw'th, Toot'g)
Hughes, Robert (Aberdeen N)


Craigen, J. M. (G'gow, M'hill)
Hughes, Roy (Newport)


Crawshaw, Richard
Janner, Hon Greville


Crowther, Stan
Jay, Rt Hon Douglas


Cryer, Bob
Jenkins, Rt Hon Roy (Hillh'd)


Cunliffe, Lawrence
John, Brynmor


Cunningham, G. (Islington S)
Johnson, James (Hull West)


Cunningham, Dr J. (W'h'n)
Johnson, Walter (Derby S)


Dalyell, Tam
Johnston, Russell (Inverness)


Davidson, Arthur
Jones, Rt Hon Alec (Rh'dda)


Davies, Rt Hon Denzil (L'lli)
Kaufman, Rt Hon Gerald


Davis, Clinton (Hackney C)
Kerr, Russell


Davis, Terry (B'ham, Stechf'd)
Kilroy-Silk, Robert


Deakins, Eric
Kinnock, Neil


Dean, Joseph (Leeds West)
Lambie, David


Dewar, Donald
Lamond, James


Dixon, Donald
Leadbitter, Ted


Dobson, Frank
Leighton, Ronald


Dormand, Jack
Lewis, Arthur (N'ham NW)


Douglas, Dick
Lewis, Ron (Carlisle)


Dubs, Alfred
Litherland, Robert


Dunnett, Jack
Lofthouse, Geoffrey


Dunwoody, Hon Mrs G.
Lyon, Alexander (York)


Eastham, Ken
Mabon, Rt Hon Dr J. Dickson


Edwards, R. (W'hampt'n S E)
McDonald, Dr Oonagh


Ellis, R. (NE D'bysh're)
McElhone, Mrs Helen


Ellis, Tom (Wrexham)
McGuire, Michael (Ince)


Ennals, Rt Hon David
McKay, Allen (Penistone)


Evans, Ioan (Aberdare)
McKelvey, William


Evans, John (Newton)
MacKenzie, Rt Hon Gregor


Faulds, Andrew
Maclennan, Robert


Field, Frank
McNally, Thomas


Fitch, Alan
McNamara, Kevin


Flannery, Martin
McWilliam, John


Foot, Rt Hon Michael
Magee, Bryan






Marks, Kenneth
Silkin, Rt Hon J. (Deptford)


Marshall, D (G'gow S'ton)
Silkin, Rt Hon S. C. (Dulwich)


Marshall, Dr Edmund (Goole)
Silverman, Julius


Marshall, Jim (Leicester S)
Skinner, Dennis


Martin, M (G'gow S'burn)
Smith, Rt Hon J. (N Lanark)


Mason, Rt Hon Roy
Snape, Peter


Maxton, John
Soley, Clive


Maynard, Miss Joan
Spearing, Nigel


Meacher, Michael
Spellar, John Francis (B'ham)


Mikardo, Ian
Spriggs, Leslie


Millan, Rt Hon Bruce
Stallard, A. W.


Miller, Dr M. S. (E Kilbride)
Steel, Rt Hon David


Mitchell, R. C. (Soton Itchen)
Stewart, Rt Hon D. (W Isles)


Morris, Rt Hon C. (O'shaw)
Stoddart, David


Morris, Rt Hon J. (Aberavon)
Stott, Roger


Morton, George
Strang, Gavin


Moyle, Rt Hon Roland
Straw, Jack


Newens, Stanley
Summerskill, Hon Dr Shirley


Oakes, Rt Hon Gordon
Taylor, Mrs Ann (Bolton W)


Ogden, Eric
Thomas, Dafydd (Merioneth)


O'Neill, Martin
Thomas, Jeffrey (Abertillery)


Orme, Rt Hon Stanley
Thomas, Mike (Newcastle E)


Owen, Rt Hon Dr David
Thomas, Dr R. (Carmarthen)


Palmer, Arthur
Thorne, Stan (Preston South)


Park, George
Tilley, John


Parker, John
Tinn, James


Parry, Robert
Torney, Tom


Pavitt, Laurie
Varley, Rt Hon Eric G.


Pendry, Tom
Wainwright, E. (Dearne V)


Penhaligon, David
Wainwright, R. (Colne V)


Pitt, William Henry
Walker, Rt Hon H. (D'caster)


Powell, Raymond (Ogmore)
Wardell, Gareth


Prescott, John
Watkins, David


Price, C. (Lewisham W)
Weetch, Ken


Race, Reg
Wellbeloved, James


Radice, Giles
Welsh, Michael


Rees, Rt Hon M (Leeds S)
White, Frank R.


Richardson, Jo
White, J. (G'gow Pollok)


Roberts, Albert (Normanton)
Whitehead, Phillip


Roberts, Allan (Bootle)
Whitlock, William


Roberts, Ernest (Hackney N)
Wigley, Dafydd


Roberts, Gwilym (Cannock)
Willey, Rt Hon Frederick


Robertson, George
Williams, Rt Hon A. (S'sea W)


Robinson, G. (Coventry NW)
Williams, Rt Hon Mrs (Crosby)


Rooker, J. W.
Wilson, Gordon (Dundee E)


Roper, John
Wilson, Rt Hon Sir H. (H'ton)


Ross, Ernest (Dundee West)
Wilson, William (C'try SE)


Ross, Stephen (Isle of Wight)
Winnick, David


Rowlands, Ted
Woolmer, Kenneth


Ryman, John
Wright, Sheila


Sandelson, Neville
Young, David (Bolton E)


Sever, John



Sheerman, Barry
Tellers for the Noes:


Sheldon, Rt Hon R.
Mr. Hugh McCartney and


Shore, Rt Hon Peter
Mr. Austin Mitchell.


Short, Mrs Renée

Question accordingly agreed to.

Mr. Speaker: forthwith declared the main Question, as amended, to be agreed to.

Resolved,
'That this House notes that Government spending and borrowing are firmly under control and that inflation in the United Kingdom fell more in 1982 than in any other major country; rejects the reimposition of exchange controls and welcomes Her Majesty's Government's determination to maintain policies needed to combat inflation, and hence encourage growth and employment on a secure and sustainable basis.'

Welsh Rate Support Grant

The Secretary of State for Wales (Mr. Nicholas Edwards): I beg to move,
That the Welsh Rate Support Grant Report 1980 (Supplementary) (No. 2) Report 1982, which was laid before this House on 20th December, be approved.

Mr. Speaker: With this, it will be for the convenience of the House to take the other four Welsh motions:
That the Welsh Rate Support Grant Report 1980 (Supplementary) (No. 2) (Amendment) Report 1982, which was laid before this House on 17th January, be approved
That the Welsh Rate Support Grant Report 1982 (Supplementary) Report 1982, which was laid before this House on 20th December, be approved.
That the Welsh Rate Support Grant Report 1982 (Supplementary) (Amendment) Report 1982, which was laid before this House on 17th January, be approved.
That the Welsh Rate Support Grant Report 1983–84, which was laid before this House on 20th December, be approved.

Mr. Edwards: I think that it will be helpful if I deal with the supplementary reports before moving on to the main report for 1983–84. A supplementary report is the means by which account is taken of changes in certain costs and other factors which were uncertain or unknown when the main report was made. For example, it takes account of the most up-to-date information on rates of interest and rateable values. It also close-ends the grant. In other words, it ensures that grant payments to individual authorities in aggregate equal the total amount of grant available.
The supplementary reports are significantly different from the supplementary report that we debated last year, in that they give effect to the Government's decision to withhold rate support grant in respect of the overspending by local authorities that occurred in 1981–82 and 1982–83.
I had very much hoped that that action would not have been necessary. I had hoped that authorities would have kept their expenditure within the provision provided by the rate support grant settlements. As I said in the rate support grant debate last year, I took a conscious decision not to reduce the total amount of grant available for 1981–82, even though local authority budgets showed a total level of current expenditure in excess of the overall current expenditure target. I thought it right to give the local authority associations the chance to do what they said was possible and that they believed they would achieve. However, I said explicitly at the time that I was reserving my judgment, and that the Government would have to reduce grant by means of a further supplementary report if any expenditure excess remained.
I regret that that has proved to be the case. In 1981–82, after discounting emergency snow expenditure, there was a net current expenditure excess of about £12 million above settlement provision. That amount is too large to ignore. Accordingly, I propose to withhold £2·2 million grant from authorities in respect of the 1981–82 overspend. The amount of grant withheld from an individual authority will be directly related to the contribution it made to the overall overspend. That is the fairest way of effecting grant withholding.
I turn now to the supplementary report for 1982–83. That effects grant withholding for the current year. When authorities' original budgets for this year were analysed, they showed a total expenditure excess over rate support


grant provision of about £57 million. That was particularly disappointing in view of the very adequate rate support grant settlement for the current year. I therefore asked authorities to submit revised budgets by the end of July and, at the same time, I set individual authority total expenditure targets. The revised budgets led to a welcome reduction in planned expenditure, but there still remained a significant excess of £25 million. The Government cannot accept such an overspend. Accordingly, I propose to withhold £4·2 million grant. That figure has been reached after taking into account certain disregards under section 8(4) of the Local Government Finance Act 1982.

Mr. Donald Anderson: How can the Secretary of State justify penalising Wales more harshly than England, which had a larger overspend?

Mr. Edwards: The settlements for Wales have been much more generous than for England. The level of withhold is of the same order of magnitude in percentage terms as for England. Furthermore, because of the way in which the Welsh local authorities have performed relative to England during the period, they have had substantial additional capital resources made available to them. The level of withhold at £2·2 million is modest in relation to the overspend, as is the withhold in relation to this year. The amounts are a little less than I mentioned in the summer.

Mr. Roy Hughes: How does the Secretary of State justify the position in Newport, which has a standstill rate for the forthcoming year—and for the previous two years—yet has a £250,000 penalty? In the grant-related expenditure assessment, why does the right hon. Gentleman not take into consideration the penny rate subsidy for the buses or the upkeep of Tredegar house in Newport, which has been an important asset to the town?

Mr. Edwards: We are not talking about the rate supplement for this year, to which the hon. Member referred, but for the two previos years. Newport was fully aware of the targets being set and the consequences of the decisions when it took them. It had plenty of opportunity to revise its budgets accordingly. The provisional decisions that it has made for the current year, which provide for a modest amount on its current plans over targets, show that it needs only the smallest possible adjustment by a local authority to avoid any form of penalty at all.

Mr. Dafydd Wigley: I am grateful to the Secretary of State for allowing a third intervention. Is it not true that for an authority that is overspending by 1 per cent., the penalty in Wales will be 1½p in terms of grant, while it will be only 1p in England? Why is that so?

Mr. Edwards: The simple fact is that the total overspend in England has been much higher and the total amount withheld substantially greater. The amounts for individual authorities and the problems posed for those authorities are also much greater. The hon. Member for Caernarvon (Mr. Wigley) refers to small percentage differences, but the actual amounts that the Welsh local authorities have to deal with and their relation to the authorities' total budgets are relatively extremely small compared with the amounts with which some English authorities have to contend. We are not dealing with very

significant amounts. Indeed, some might believe that this withholding is no more than a token and a guide for future action.
I regret having to withhold grant, but the Welsh local authorities knew full well that this would be the consequence of spending above the settlement provision. In response to questions after the statement on 20 December I made it perfectly clear that we would not hesitate to act in a similar way this year. The provision that we make is not decided lightly. Expenditure must be paid for out of the pockets of taxpayers and ratepayers. Every penny on the rates means an additional burden on the community at large and in industry and commerce may effectively destroy jobs, but I shall return to that aspect.
I should also make it clear that I am not an enthusiastic advocate of setting expenditure targets. It would be far better all round if authorities ensured that their expenditure in aggregate was kept at the level of the settlement provision, but experience in the revised budgets exercise showed that setting targets was helpful in letting authorities know exactly where they stood. In fact, 18 out of the 37 district and eight county authorities met their targets this year and thus have avoided both the withholding of grant and the close-ending adjustment, so clearly it can be done. As in 1981–82, the remainder will suffer grant withholding in direct proportion to the extent to which they have contributed to the overspend.
I turn now to the main Welsh rate support grant report for the coming year. This settlement, like previous settlements, has to be seen in the context of the Government's aim to contain local authority spending within a level that the country can afford. A start has been made in this direction. From local government reorganisation in 1974 until we took office, local authority expenditure in Wales outstripped inflation in its sector by 10 per cent. Since then, I am glad to say the trend has been reversed. Local authorities have been able to contain their spending to about 3½ per cent. below the increase in their costs. This change has been accompanied by a reduction in local authority manpower of just under 4 per cent. since June 1979. More needs to be done, but the level of total expenditure suggested in the present settlement should be readily achievable. What the Government have asked for is some restraint and a drive for improved efficiency on a scale that I fear that other organisations will regard as all too modest against the background of world recession.
Members will be familiar with the main items of the settlement that I announced in the House in December and I do not intend to go over them again in detail. The most important features for local authorities are the totals of relevant expenditure accepted for grant purposes, particularly current expenditure and the aggregate Exchequer grant.
For relevant expenditure, the provision of £1,385 million is an increase of about £84 million or 6·5 per cent. on this year's provision, with current expenditure at £1,205 million being £79 million or about 7 per cent. more than for this year. This is a very reasonable level of provision. The £1,205 million for current expenditure is exactly what I announced provisionally last July and it has not been reduced despite the welcome reduction in inflation since then. Current expenditure provision, after allowing for the reduction in authorities' national insurance surcharge payments next April and a modest budget drift of 1 per cent., is about 5 per cent. more than authorities' present level of current expenditure as


reported in revised budgets. I am satisfied that, provided pay settlements are kept low, this increase is sufficient to enable local authorities broadly to maintain their services at this year's level. It will require continuing efforts on their part to improve efficiency and thus reduce costs.
Aggregate Exchequer grant at £975 million is £32 million or about 3·4 per cent. more than the figure set out in the main report for the current year. To those hon. Members who made a comparison with England earlier, I would point out that that is a significantly higher percentage than the percentage increase in England. This figure must be seen in the context of the amount authorities plan to spend in the current year.
The revised budget exercise resulted in authorities reducing their original planned expenditure by £32 million, but authorities had already rated for this level of expenditure. They already have that money—they do not have to raise it again. In deciding on their rate level for the coming year, local authorities should therefore rememeber that the present rate level already allows for a total increase of £32 million over this year's expenditure as indicated by their revised budgets. They should also take into account that the excess rate income this year has contributed to an unplanned increase of about £60 million in their financial balances. Next year's current expenditure provision is about 5 per cent. more than the present level of current spending. Calculations accepted by the Welsh local authority associations show that on the basis of this provision and assuming broadly the same level of local authority services, there need be on average virtually no increase in rates next year. This is what must be borne in mind when considering the question of rate increases for the coming year.

Mr. Wigley: The Secretary of State is talking in averages. As he knows, averages can be extremely dangerous. Does the right hon. Gentleman accept that there has been a significant increase in the specific grants for the improvement of houses—an increase of about £8 million—which, when taken out of the £32 million to which he referred, brings the rest of the increase to well below the increase that local authorities will have to face in wage inflation and cost inflation?

Mr. Edwards: It is perfectly true that the position will vary from local authority to local authority. It is also true that certain specific grants have been increased more than the rest of the grant provision. But, to return again to the reserve that is already built into the system, I have pointed out that rate income in 1982–83 exceeds the amount required to finance the revised budgets' level of spending by £32 million. In addition, grant provision for 1983–84 is £50 million higher than the amount for 1982–83 assumed by local authorities when they originally compiled their budgets. As a consequence—I am dealing in averages at the moment—expenditure for Wales as a whole can rise by £82 million before the aggregate rate burden for Wales needs to rise at all. As the settlement and targets allow for a level of expenditure increase which is actually lower than that, I am justified in saying that there is no need on average, even without taking account of the increase in balances to which I have referred, for increases in rates.
For those reasons the settlement for next year is fair and will not require authorities to slash services as some have claimed. Indeed, some of the initial indications from local authorities—we have had a reference to Newport's

plans—suggest that this is the case. Nor will it require authorities to make draconian cuts in staff provided that pay settlements are kept low. Hon. Members will be aware that there is an offer under consideration at the moment that is broadly in line with the type of figures we are discussing.
Hon. Members will understand that the pay factor is probably the most important issue in determining the level of services that can be provided within the settlement cash provision. The settlement provides a reasonable level of relevant expenditure for services and a substantial Exchequer grant in support of this expenditure. There need, on average, be virtually no rate increases next year. Total expenditure would need to rise by more than 6 per cent. compared with the revised budget levels before the aggregate rate call for Wales as a whole need rise at all or before any use is made of balances. I believe that many local authorities will think it reasonable to use some of the balances.
I turn now to other features of this year's settlement. First, I have strengthened the basic block grant mechanisms in order to put more pressure on the highest spenders above GRE. The ability to increase the ratepayer contribution for expenditure both above and below the threshold and therefore to ensure that the general taxpayer contributes less is, of course, an integral part of the block grant system. In this context strengthening the mechanisms to put greater pressure on the higher spenders is both logical and desirable. It is only right that authorities whose expenditure is well above GRE should make the greatest efforts to bring their expenditure down to more acceptable levels. In so doing they will leave more grant for authorities with lower levels of spending.
Secondly, I have set individual authority expenditure targets. The Local Government Finance Act 1982 requires me to do this if I am to withhold grant in a discriminate manner. I very much hope that there will be no need to effect grant withholding for the coming year. I hope that authorities' expenditure in aggregate will be in line with provision. But, if this is not the case, it is those authorities which have contributed towards the expenditure excess that should be required to face the consequences of their actions, and not shrug off some of the burden to other authorities which have kept their expenditure down.
The targets themselves are based on total expenditure and include components for current expenditure, capital charges and interest receipts and, for districts, rate fund contributions to the housing revenue account.
This last component takes account of the Government's decision that, for calculating housing subsidies, local authority income will be assumed to increase by 85p per dwelling per week. This increase of 6 per cent. on the average council house rent in Wales of £14 is broadly in line with inflation. The least well-off tenants will continue to be assisted, of course, by either rent rebates or supplementary benefit. More than half of tenants are in that position. In order that all authorities have an achievable target, I have decided to set the current expenditure component of targets in such a way that every authority will receive extra cash over and above its present level of current spending. Thus, no authority will receive a cash increase for current expenditure of less than 1½ per cent.; similarly no authority will receive a cash increase greater than 5½ per cent. When account is taken of the reduction in authorities' NIS payments next year and the modest amount of budget drift to which I have referred,


these effectively become cash increases of 3 per cent. and 7 per cent. respectively. Higher spending authorities will have to make a real reduction in expenditure but none has been set an unrealistic or unattainable task: the lowest spenders will quite properly have the easiest job to do.
I have, under the provisions of the Local Government Finance Act 1982, to set out the maximum amount of grant which could be withheld if expenditure exceeds provision. Guidance on this is contained in appendix 12 of the 1983–84 report and shows that holdback as a percentage of expenditure excess starts at 40 per cent. for a 1 per cent. expenditure excess over target, rising to a maximum of 75 per cent. of the expenditure excess. Of course, if expenditure in aggregate for all authorities is at or below the level of rate support grant provision there will be no need at all to effect grant withholding: I very much hope that this will be the case.
The only other point that I need to mention is the safety net provision. I have set this at the same level as in the previous two years. It provides protection to ratepayers from changes arising in GREs and the residual effects of moving to the new block grant system. At the ratepayer level the protection is equivalent to 5p; that is 1p for the districts and 4p for the counties.
That, then, is the background to the reports we are debating today. They must be seen in the context of the Government's general expenditure objectives. There remains in our view an overriding need for economy in local authority expenditure. I am convinced that ample opportunities exist for expenditure reductions to be achieved without adversely affecting services. Many authorities have already demonstrated that that is possible and there is no reason why others should not be able to do the same. The Government recognise that some authorities have made efforts to reduce expenditure, and this has been reflected in the targets set for the coming year; equally, others must make a far greater effort.
At the end of the day, however, it remains the responsibility of local authorities to determine their own levels of expenditure and to set their rate levels. I trust that in doing so they will act responsibly. They should remember the very strong and legitimate feelings that exist among ratepayers about the burden of rates. They should especially realise the serious consequences for industry and for employment if they impose penal and destructive burdens on firms struggling to be competitive. It is significant that rates represent a charge of £240 a head on every person employed in Wales, or approximately £290 on every person employed in the manufacturing industry. If authorities were to overspend in 1983–84 by, say, 3 per cent., that would impose a direct job tax of £30 to £40 a head in their area.

Mr. Edward Rowlands: That is nonsense.

Mr. Edwards: The hon. Gentleman is always screaming about the need to improve the incentives for industry and to reduce job costs. To encourage, as he does—characteristically—from a sedentary position, such an additional burden on firms in his constituency merely shows his irresponsibility.

Mr. Rowlands: If the Secretary of State wishes to talk about my constituency, will he tell the House what percentage of costs in industry generally—or in a sample company in my constituency—can be attributed to rates?

Mr. Edwards: No, but I can tell the hon. Gentleman that only today I have read the correspondence that he has had about the relative costs of producing Hoover washing machines with those of Indesit. He suggests that everyone employed by Hoover should not worry if an additional tax burden is placed on that company. We need no longer take his representations seriously. We now understand exactly the way in which he cares about employment at Hoover.

Mr. Rowlands: The answer is "No".

Mr. Edwards: There is no reason why rate levels should not be held. Some local authorities—Birmingham is a good example—have shown that they can be reduced. There has been a substantial and widespread increase in balances since authorities prepared their original budgets in the summer. They have increased from about £70 million to about £130 million. Even with the most prudent use of balances, that means that there is real scope for rate reductions. I can think of no greater contribution that authorities can make to the communities that they serve and to those who seek employment than by their containing or, better still, reducing the rate burden this year. That is what the hon. Member for Merthyr Tydfil (Mr. Rowlands) should support.

Mr. Alec Jones: For a variety of reasons, we have not had an auspicious start to today's debate. We are dealing with three reports published on 20 December, and two supplementary reports published on 17 January, which were necessary because of errors—presumably technical errors—discovered by 6 January. I do not propose to make heavy weather of that, but someone at the Welsh Office had either a very busy Christmas or a very embarrassing Christmas when those errors were discovered. The supplementary reports confirm the view that the present system of calculating the rate support grant has, under the Government, become so complicated that few understand it and even the technical experts at the Welsh Office can make errors.
The two supplementary amendment reports show the extent of this Government's vendetta against local government. They give details of the amounts of grant witheld from local government in Wales over the past two years. Presumably the county of Clwyd, by the Secretary of State's criteria, is the biggest villain, because now it is to lose £650,000 in grant, while it wrestles with the problems associated with its particular difficulties.
Clwyd has a higher percentage of school-children, old-age pensioners, old people in residential homes and unemployment than the all-Wales average. It is still to be penalised for profligate overspending.

Sir Anthony Meyer: The right hon. Member is right in saying that Clwyd faces particular difficulties. I think that I am the only hon. Member for Clwyd here tonight. Clwyd faces severe difficulties, but those will be made worse unless the authorities in Clwyd make every effort to keep the rate burden low. The desperate need is for incoming industries, and a high rate burden will be the worse thing for attracting those jobs.

Mr. Jones: The hon. Member for Flint, West (Sir A. Meyer) should not support a Government who are increasing that rate bill. I shall not give way to the hon. Gentleman again while he continues to make abusive remarks about my hon. Friend the Member for Flint, East (Mr. Jones), when he knows where my hon. Friend is.
The Secretary of State constantly claims, as he did tonight, that expenditure decisions are matters for individual local authorities, when he knows that if a local authority makes a decision on spending that is not in accordance with his own diktats, it renders itself open to these penalties.
The main report is the Welsh Rate Support Grant Report 1983–84. There is a common feature in all the rate support grant settlements introduced by this Secretary of State. That is that there have been reductions in grant and added burdens on ratepayers in one form or another in every one that he has introduced. In 1982, he reduced the level of domestic rate relief from 36p to 18 ½p in the pound. Year after year under this Secretary of State we have seen cuts in the percentage of Government support. This year is certainly no exception.
Government support for local authority essential services such as education and social services, services that enhance the quality of life for most of the people in Wales, is again being cut, from 72·5 per cent. to 70·4 per cent., a cut of 2·1 per cent. This cut in the rate of grant means a loss of £28 million to Welsh ratepayers.
The Secretary of State earlier talked of his concern for industrial ratepayers, but the £28 million will have to be made good by the industrial ratepayers as well. He has reportedly said that it is the cash position that matters, and that the percentages are rather meaningless. The unpleasant truth is that ratepayers, who include the industrial ratepyers whom the Secretary of State is so determined to protect, will now have to find £28 million more next year than they would have if he had had the guts and ability to fight to maintain the rate grant at the previous level.
The Secretary of State has reasserted his claim that on average there need be hardly any increase in rates next year. He is living in cloud cuckoo land. That is not the view of local authority associations. I am convinced that local authority associations know a lot more about the matter than the Secretary of State.
Is it the Secretary of State's view that there need be hardly any rate increases next year is shared by the local authority associations that he consulted in the consultative committee? The associations' view—those are professional people who are engaged in this matter year in, year out—is that the cut in grant from 72·5 per cent. to 70·4 per cent. means that on average rate levels in Wales will be approximately 7 per cent. That is more than 10 per cent. higher than if the present grant had been retained. While individual local authorities face different sets of circumstances, the overall consequence of reducing the level of rate support grant to this extent must be an increase in rates.

Mr. Ian Grist: Why?

Mr. Jones: If the Secretary of State has deliberately withdrawn by a reduction of grant £28 million from ratepayers in Wales, is he saying that the services in Wales now have to be cut back? The money will have to come from somewhere.

Mr. Nicholas Edwards: As that is less than the £32 million that was overprovided, that alone, without taking into account the other factors that I mentioned, does not mean that there is any need for an increase in rates.

Mr. Jones: That assumes that the local authorities will be content to see a continuation of their services being run down, as they have been run down in each of the past three years. If that is the Secretary of State's view of what local authorities should do, it is not shared by the people of Wales.
The Secretary of State refered to rents. He should have hidden his head in shame because of what he has allowed to happen to council rents in Wales since he became responsible. In 1979–80 rents were £6·50 a week, the weekly unrebated rent for council dwellings in Wales. The first increase was 24 per cent., to £8·09. The following year there was a 41 per cent. increase to £11·41. The following year there was a 22 per cent. increase to £13·91. Even assuming that only 85p is added, rents this year will be £14·76 a week, the highest they have ever been.

Mr. Tom Hooson: Will the right hon. Gentleman give way?

Mr. Jones: No, I shall not give way.
Council rents, under the Secretary of State's control, have risen by 127 per cent. in four years. I do not believe that any other section of our society in Wales has faced similar increases in housing costs.
Just over a year ago, in response to a parliamentary question, we were told that more than half of the housing authorities in Wales were in surplus on their housing revenue accounts. What is the position today and what use is being made of that surplus? Is it being used in local authorities collectively or individually to finance either other local government services or the reductions in the rate support grant imposed by the Secretary of State? Either of those methods would be totally unfair to council tenants, who have suffered the greatest increase in housing costs.
Like a good many people in local government and, I suspect, most hon. Members, I have become increasingly confused by the relationship, if there is any, between grant-related expenditure and the targets that have been set. By the Government's definition, grant-related expenditure for a particular authority is an assessment of how much it would cost that authority to provide a typical standard of service, having regard to the authority's circumstances and responsibilities.
That seems to be a reasonable definition. We now find that local authorities in Wales have been set targets, some below the GRE and some above the GRE.
At present, 25 district councils and four county councils in Wales have targets below their grant-related expenditure. If they attempt to provide the typical standard service envisaged in the Government's definition of GRE they must inevitably breach their targets and become subject to a reduction in their grants. Gwent county council is an example of this. It has a target of £2·5 million below the grant-related expenditure figure. Will it be penalised if it spends up to its GRE level by providing the same standard of service that applies in other parts of the country?

Mr. Wigley: Gwynedd is in the same position. Its target is £86·25 million and the grant-related expenditure


is £87·4 million. Does the right hon. Gentleman feel that it would be reasonable for the Government, even within their own parameters, not to penalise any authority unless the expenditure goes above the GRE and not just above the target?

Mr. Jones: If authorities knew where they stood, it would be of some help. The snag is that the situation has become so complicated and confused that some councils are cheering and saying, "Hurrah for targets," and others in different positions are saying, "Hurrah for GREs." That is ridiculous. If the GRE was intended to express the amount of money which a local authority ought to expend to provide a fairly uniform standard of service, I cannot see the logic of penalising local authorities that provide it.
On 20 December, when the Secretary of State made his announcement, he made some play about the position of Mid-Glamorgan. I have spent some time getting the figures from Mid-Glamorgan. I use Mid-Glamorgan as an example that has implications for most other councils in Wales. Mid-Glamorgan has a 1983–84 budget of £207·9 million. That is 4·4 per cent. above the target of £199·1 million. I should like to think that Government Departments such as the Ministry of Defence always got their expenditure to within 4·4 per cent.
The Secretary of State had this to say about targets to the Welsh Consultative Council last October:
However they are viewed, targets are not cash limits for individual authorities and in no way reduce the right of an individual local authority to spend at the level it thinks appropriate".
When looking at Mid-Glamorgan, we must ask—this applies to other authorities—whether it is a profligate authority or whether its budget proposals are appropriate. [HON. MEMBERS: "Yes."]
It ill becomes anyone to say "Yes" until he has heard some of the facts about the area we are discussing. The facts clearly show that Mid-Glamorgan county council has made an appropriate decision.
Education in Mid-Glamorgan has suffered £10 million in cuts over the last three years. The authority has reduced its teaching force by 500, and only 160 of those were brought about by falling rolls. If it was to meet the Government's new target, it would need to cut a further £4 million from its standstill budget of last year.
The only realistic way of making such a cut in Mid-Glamorgan's education services would be to end totally the option of nursery education. That would make 400 teachers and other non-teaching staff redundant, close schools and mean that in 1983, under Tory Government, nursery education, which has continued in Rhondda for more than 70 years, would come to an end in an attempt to meet the target imposed by the Government.
The thought of a county such as Mid-Glamorgan, with its excessively high unemployment, without nursery education, is a monstrous proposition that no one would support. That high unemployment increases the demands on the education service.
As a consequence of the Government's economic policies, the number of free school meals in Mid-Glamorgan has increased from 14,054 to 25,018 a rise of 80 per cent. The number of clothing allowances has gone up from 2,765 to 9,300, an increase of 300 per cent. Maintenance allowances have gone up from 464 to 920,

an increase of 100 per cent. Those are the extra demands made upon Mid-Glamorgan by this miserable Government.
Last March, that education authority received a report from Her Majesty's inspectors drawing attention to the considerable under-achievement by middle ability fourth and fifth year pupils in Welsh secondary schools. Faced with that report, the Mid-Glamorgan county council agreed to appoint 200 extra teachers in September and to restore the cuts in capitation. That is the correct decision, and I support the county council for taking it.
Social services is another of the county council's high-spending departments, but the extra money that has been earmarked has nothing to do with improved services. The county council is merely seeking to maintain the same level of service for the greater number of people who need it.
Industrial injury and disease is particularly high in Mid-Glamorgan. The death rate there is 17 per cent. higher than the average for England and Wales. Diseases of the respiratory system are 53 per cent. higher than the average for England and Wales. The percentage of people permanently unfit for employment is twice as great in Mid-Glamorgan as the percentage in England and Wales.
Those facts, coupled with the geographical difficulties associated with steep valley communities—where the number of houses lacking essential amenities is the highest in the country—create complex situations that often require considerable resources in staff time, building works and equipment to provide the minimum help necessary.
Today in Mid-Glamorgan, 1,200 disabled people are awaiting a first visit from county council officers for the physically impaired. An extra £400,000 is to be spent to help those people. That is not profligacy. It is an act of common decency and humanity.
Mid-Glamorgan and other local authorities should have regard to the services required by their citizens as well as a regard—despite the Secretary of State's views—to the unemployment arising from spending cuts. The right hon. Gentleman has again continued with his obsession for reducing local authority staff. If he knew more about the subject, he would know that as more and more staff have been cut, more and more services throughout Wales have deteriorated.
Since March 1979, the number of full-time staff has fallen by 15,500, and the number of part-time staff by a further 2,500.
In his opening remarks the Secretary of State said that more needs to be done. At what cost are the staff to be cut? The cutting of staff is already playing havoc with social services and others in local government. Cuts are causing unemployment and worsening local government services. Those facts should be taken into account, not just by Mid-Glamorgan but by all other Welsh local authorities.
Despite all the pious hopes of the Secretary of State for Wales, the present rate support grant settlement, like all his previous ones—this is a view shared by people who know a great deal more about this matter than almost anyone in the Chamber—will lead to higher rates and rents, increased unemployment and poorer services. For those reasons I trust that every Opposition Member will oppose the motion.

Several Hon. Members: rose——

Mr. Deputy Speaker (Mr. Paul Dean): I remind the House that the debate must end shortly before midnight. It is evident that many hon. Members wish to speak.

Mr. Tom Hooson: It is a remarkable achievement that, during a period in which responsible financial management has to be the Government's guideline, my right hon. Friend the Secretary of State can provide a 5 per cent. increase in the rate support grant. The Government cannot be accused of being unreasonable in a difficult period.
I find a curious paradox in the dilemma of the control of local government expenditure. It is difficult for responsible councils—not all councils are responsible—to bring current expenditure under control, and that must be compared with the great difficulty in achieving desirable worthwhile capital expenditure. The capital expenditure record of every local council in Wales is distressingly poor. It is an area in which great doubts—not of a party political nature—are raised about the degree to which the constitutional system is geared to ensuring that type of expenditure is related to the appropriate long-term expenditure.
I have asked questions about the utilisation of the total resources available on housing expenditure by some of the more responsible Welsh local councils. I am glad to say that some of the more responsible are in mid-Wales. The amount that has been used is rarely more than half the total available.
I underline the paradox of the difficulty of controlling current expenditure with the difficulty of incurring responsible capital expenditure.
I have made what I believe is the appropriate comment about the generosity of the Welsh Office in the overall increase that has been provided for the coming year. I want now to concentrate, for the first time, on the inadequacy of the statistical machinery by which the assessment of the needs of counties and districts is made.
There was a false dawn early in this Parliament. I am a convinced supporter of the Government. I believe that the Government's record in mid-Wales is one of which we have reason to be proud. If there is one aspect of the performance of my right hon. Friend the Secretary of State and his colleagues in the Welsh Office about which I am critical, it is the complacent and slow-moving action of the Welsh Office in the reassessment of the formulae on which the rate support grant is levied.
The system almost defies the abilities of ordinary humans to comprehend. It is a regression analysis formula which draws on over 300 factors, among which is sparsity of population. In a county which has the smallest population in England and Wales—barely 100,000 people live in Powys—yet one of the largest areas, the provision of local government services over a wide area puts a strain on the services which is disproportionate to the revenue which can be raised at the local base. I am describing in extreme form what can also be found in several other rural counties in Wales.
One hoped that when the control of the allocation of the rate support grant moved to the Welsh Office there would be more flexibility in analysing the needs of rural counties. I am distressed about the slowness of Welsh Office Ministers in responding to this situation.
Some situations are so obvious that they barely need to be described. I do not intend to take much of the time of

the House, but I will give the obvious example: a fire engine can hardly be required to cover an area with a radius of 60 miles. It follows that the cost of providing a bare minimum of essential services is far greater in rural than in urban areas. The results for Powys are so absurd that in every year's settlement it is necessary for a note of grace to be brought into the decision by the Secretary of State and provision is then made for a discretionary allowance.

Mr. Nicholas Edwards: My hon. Friend should not imply that nothing is being done. Already in this year—these things are reviewed every year—adjustments have been made to the GRE to take account of sparsity factors in rural areas, particularly for transport. Powys gets about 90 per cent. in respect of particular allowances, while Mid-Glamorgan, say, gets only 60 per cent. There is a greater sparsity allowance built in to the GRE, and this has been altered this year.

Mr. Hooson: I accept that there are particular places where adjustments have been made. What I am still driving at—I am not satisfied by my right hon. Friend's reply on this point—is that there is a basic built-in cost for all the rural councils, whether at county or district level, which is considerable. For example, public transport is virtually non existent in rural areas. The fire service I have mentioned. Then there is refuse collection, subject choice and computer studies in secondary schools, leisure centres, choice of library books and large museums within reasonable travelling distance. The list could go on endlessly, but I do not intend to go on endlessly.

Mr. Gareth Wardell: It is interesting that, in the appendices relating to relevant expenditure, the proportion that is allowed out of the current expenditure for local transport has, indeed, fallen between 1982–83 and 1983–84. I agree with the hon. Gentleman about that particular aspect, which is extremely worrying for the people of my constituency, too.

Mr. Hooson: I am grateful to the hon. Gentleman for that thoughtful and informative interjection.
I make no complaint about the degree to which my right hon. Friend and his colleagues have responded to problems which have been identified as arising from rural circumstances. Last winter was very bad. I hope we shall see nothing like it in the next few weeks. I cannot complain about the way in which allowance has been made in specific cases, but if there is one quality in country people that a Conservative Secretary of State ought to appreciate, it is their self-reliance and reluctance to seek additional help.
In this context it is absurd that Powys county council has to rely on a remarkable degree of charity—that is what it is—when it come to discretionary decisions by the Secretary of State on the allocation of a certain margin of funds. We are relying on the good will of the Secretary of State of the day, but the inhabitants of Powys would be content to rely upon objective criteria on the needs of specific areas.

Mr. Delwyn Williams: Would my hon. Friend and neighbour care to comment on the glaring inconsistency that whereas Powys had £387 per head rate support grant at county level in 1981–82, which is ahead of the Welsh average, it had an average of only £61 per


head at district level, which is 30 per cent. below the Welsh average? Does he agree that this is an unfair and manifestly glaring omission by the Welsh Office?

Mr. Hooson: This is yet further evidence of the fact that the system in the Welsh Office computer is inadequate to reflect the problems not only of Powys but of Dyfed, of Gwynedd, and, for all I know, to some extent even of Clwyd.
I realise that there is a constitutional problem in the degree to which the association of local councils decides to review the allocation of the formula. This is the only area in which I am not satisfied with the excellent leadership in the Welsh Office. I am not satisfied that we have had a sufficient lead in re-examining the rate support grant formula with particular reference to the issue of sparsity. We need a more decisive commitment from the Welsh Office than we have so far received.

Mr. Dafydd Wigley: I am glad to follow the hon. Member for Brecon and Radnor (Mr. Hooson). The points he has made are valid but difficult. The formula is complicated already. Much though I agree with him on the need to develop indicators that give the right reflection of the needs of rural and urban areas, one has to get a formula that is acceptable to both types of area and the right weighting of the various elements within that formula, such as sparsity and super-sparsity, the proportion of people over 75 who have a greater demand on services, the miles of road that have to be maintained and this sort of thing. The difficulty is deciding how a finite pool of money should be carved up.
I suspect that at the end of the day a political judgment has to be reached, although nobody would admit to that. That judgment may be reached before or after things are published. Then one can use a multi-parameter model to justify one's conclusions. If there are to be need indicators they should stand up on a local basis. There are some sort of need indicators developed in the Welsh formula but then we see at table 9.2 a rider:
Since no part of the block grant is earmarked for particular services, the tables in this Appendix do not form a basis for calculating a notional allocation of either grant-related expenditure or grant to individual authorities for any particular service.
If there are to be need indicators, they must stand up for each service and in each authority and in Wales as a whole. At the moment, we have moved only half-way towards that position. I know the difficulties. I shall not press the point. If, however, there are to be these parameters, it would be preferable to have the whole package built up element by element. One would therefore know what was available for individual services in individual authority areas.

Mr. Hooson: Does the hon. Gentleman consider, as we are dealing with matters in a much smaller Welsh context, that it might be useful to reduce the number of factors involved to 30 or 40, which would permit a manageable debate on the needs of different areas?

Mr. Wigley: It is obvious that hon. Members are more likely to understand 40 factors than a number several times higher. The problem, I suspect, will be the size of the ultimate cake. We in Plaid Cymru will be arguing always to try and obtain as large a cake as possible.
The settlement can be discussed only in the context of the economic problems facing Wales and also facing individual ratepayers, commercial and industrial concerns and especially the worst off, those who depend on social services, school meals and, as the hon. Member for Wrexham (Mr. Ellis) says, school transport. The economy is in an almighty mess. The need is greater but the resources provided have not significantly increased and are not adequate.
For ratepayers, there are other additional costs. The water rate has been increased by 6 per cent. That is an average figure for all Welsh water authority customers. The increase will not, however, be applied for the water sold to Severn-Trent water authority. This means that the increase for Welsh domestic ratepayers will be greater than 6 per cent. It will be hard to bear. This settlement comes at a time when Wales may be missing out on European regional development fund grants. This fund is a finite sum, which is now to be redirected mainly to the inner cities, and the switch will be at the expense of areas that have benefited in the past.
A document issued by the Department of the Environment on 13 December states:
The Government is concerned to present the case for ERDF aid to Inner Cities in ways which are least likely to generate opposition. … Indeed, we would like to minimise publicity at this stage".
One can understand that view if areas such as Wales are to miss out severely should ERDF funds be directed to inner city areas at their expense. I hope that the Secretary of State is putting up a determined fight on this issue in Cabinet.
In the planning of transport and buses, it is difficult to organise a programme for one year. There is a need to look two or three years ahead. A rolling programme is necessary in order to devise a coherent investment pattern for the purchase of buses to serve rural Wales. This cannot be done on the basis of a one-year settlement and better information is required for such planning.
The Secretary of State has said little about the capital programme. We had expected in Gwynedd to have a capital settlement in excess of £11 million. We appear to have £7¼ million, which is cutting matters to the knuckle. As a result, a vital project for the economy of Gwynedd, the link road to Llandudno, was axed from the programme today. It is, however, much needed because of the increased pressure of traffic with the building of the Conway bypass. The Welsh Office has been short-sighted in not providing additional funds to meet that requirement.
Given the increase in council house rents in recent years, I would have thought that there could have been a moratorium on increases this year. Council house rent payers have suffered enough.
When the Secretary of State announced this settlement on the Monday before Christmas, he underlined several times the point that "on average" local authorities need not increase rates. He talked in terms of averages again today. As the right hon. Member for Rhondda (Mr. Jones) said, there is to be a reduction in the proportion of the total relevant expenditure that is to be met by aggregate Exchequer grants. There is to be a reduction from 72·5 per cent. to 70·4 per cent. That is a reduction of 2·1 percentage points. That figure should be compared with the rate borne expenditure proportion of 27·5 percentage points on which the calculation was made last year. That means that we are


losing 7·6 per cent. or, to put it another way, we need an additional 7·6 per cent. income from rates to retain the same expenditure.
I told the Secretary of State on the last Monday before Christmas that that meant that there would have to be a 9p increase in the rates in Gwynedd, to which anything else to meet inflation would have to be added. He disagreed, and said that, on average there would be no need for rate increases. In fact, the rates in Gwynedd have been increased today by 14p. That represents 9p to regain what it has lost and an additional 5p to keep them more or less in line with inflation.
I hope that the Secretary of State will accept that whereas on average he might have been right, when he applies that average to local circumstances, especially authorities such as Gwynedd,—the reserves of which at the end of the present financial year are expected to be virtually identical to the reserves at the beginning of the year—the formula does not work. The ratepayers in Gwynedd are facing a 14p increase in the rates because of the attempt to maintain services there. That is being done after Gwynedd has already, regrettably, cut 116 permanent staff and 187 part time employees. Those people were doing much-needed work in an authority that is not, by any stretch of the imagination, overstaffed.
I realise that the hon. Member for Montgomery (Mr. Williams) would like to cut all services and leave people who rely on them without anything. He may be doing that in his constituency. Nevertheless, the services in Gwynedd are vital.
Another factor to which the Secretary of State has not referred is that the changing demographic pattern works in two ways. There may be a reduction in school rolls, but there is an increase in the elderly population that needs to be sustained. Whereas the Secretary of State is willing to accept the underspending that may have arisen because of falling school rolls—he uses that as a justification for not giving a greater settlement this year—he has not taken account of the increased costs at the other end of the age scale.
Will the Minister clarify whether there is a substantial transfer of resources from the county to the district in the way in which reserves are being used to justify a need not to cut services or increase rates? I suspect that reserves may have increased in those local councils with difficulties with their housing programme and that that increase in total reserves is being used as a justification for not giving the counties the money that they need.
Will the Minister also reaffirm what I said in an intervention in the speech of the hon. Member for Rhondda? Will he seriously consider not penalising any authority the expenditure of which does not exceed the GRE even though it may not meet the target? Gwynedd will spend £87·4 million—identical with the GRE and the budget that was passed today. If the Government penalise on the basis of the target, Gwynedd will be penalised. If the Government use common sense and say that Gwynedd has not spent above GRE, Gwynedd's settlement will be accepted.

Mr. Donald Anderson: There can be little doubt that, in the past three years, the consitutional balance has swung heavily against local government in

favour of central Government. The freedom that has been left to local government is the freedom to spend less and to avoid close ending and hold back.
The first two reports reduce grants for those authorities that have exceeded targets. The essential fallacy is the Government's assumption that the targets that they have set have some objective validity. As the hon. Member for Caernarvon (Mr. Wigley) said, they are arbitrary targets that often depend on political assessments, yet on the basis of these arbitrary tagets, the penalties have been set.
The 1982–83 targets were not announced until the end of May 1982, already into the budget year when expenditure decisions had been taken.
In an earlier intervention, I told the Secretary of State that Wales had been treated more harshly than England in penalties. His response was that it was simply a token. If it was a token, why did he proceed with the penalties? Other hon. Members properly said that for three years a reduced level of expenditure has been met by central Government grant, this time reduced by 2·1 per cent. to 70·4 per cent. Expenditure has increased by almost 7 per cent. and the block grant by almost 3 per cent. The shortfall must be met from some source, and it inevitably must mean a greater burden on ratepayers.
The Government, in their manifestos for the 1974 and 1979 general elections, spoke about the abolition of rates, yet are now adding greater burdens to the ratepayers—both domestic and industrial. They have added to the burden imposed by the halving of the domestic rate relief in Wales when the relief was put at 36p in the pound to compensate for higher water charges—

Mr. Grist: Does not the hon. Gentleman realise that in South Glamorgan and Cardiff it is theoretically possible that, using balances held by the councils the rates could be reduced by between 10p and 20p in the pound this year?

Mr. Anderson: That may be true for those authorities, but the balances are there for special reasons. The Government have paid insufficient regard to the revenue effects of the welcome increase in capital expenditure. For example, for the year 1983–84 Swansea will have a capital expenditure of £24 million, which will inevitably lead to an increase on the revenue budget of about 6 per cent. When we add to that 6 per cent. inflation of 5 or 6 per cent., it makes a mockery of the Government figures of an overall increase of 7 per cent.
There is uncertainty about the current system. It will be three years before the 1983–84 grant will be finalised, and the three-year period will inevitably lead to caution by city treasurers.
The real charge against the Secretary of State and his advisers on the rate support grant settlement is that they are living in a world of numbers, not people. In our world, we see the increase in unemployment, poverty, demands on the social services, the new calls on the welfare state and the decline in bus services and educational facilities. Yet the rate support grant settlement takes no account of that, but is consistent with the Government's overall monetarist policies.

Mr. Geraint Howells: It is difficult to be brief when dealing with such a complex subject as the rate support grant. However, because of the limited time available I shall be brief. I shall try to concentrate on those


aspects of the settlement that are especially relevant to Dyfed county council and the Ceredigion district council, which is part of my constituency.
This is the third year of the new system introduced by the Local Government, Planning and Land Act 1980. A pattern has emerged for the methodology for calculating the grant entitlement of individual authorities. I am sure that the Secretary of State will be glad to hear that I have been informed that Ceredigion district council has been generally satisfied with the level of grant support that it has received.
That is not to say that all is well in Wales. An authority such as Ceredigion district council, with a target total 25 per cent. below the Government's own assessment of spending need GRE will find it far more difficult to keep within the target. Does the Minister agree that if that district council fails to meet the target and is classed as an overspender by the Welsh Office that will be a most unfair description of an authority with the fourth lowest district rate in Wales? What will be the effect of this different basis of assessment on a lower spending authority such as Ceredigion district council?
Finally, is the Minister satisfied that all the necessary services in Wales will be maintained as they have been in the past few years?

Mr. Alec Jones: The Opposition are convinced, for the following reasons, that we should oppose the motion.
First, the aggregate figure allowed in the settlement will not allow local authorities in Wales to maintain their existing services and certainly will not allow them to carry out any much-needed improvements.
We have already seen from the example given by the hon. Member for Caernarvon (Mr. Wigley) that rates in Wales will rise this year. His figure of 14p in the pound for Gwynedd excluded the rates that district councils themselves will add, so there is no doubt that rates will rise.
The Secretary of State himself accepted that council rents would rise. Indeed, he seemed to welcome that. The Government seem also to welcome the fact that if local authorities are to meet Government targets there will have to be further redundancies and poorer services by local authorities in Wales.
For those reasons, but above all because we regard the Government's attitude to local government as an assault on the very principle of local democracy, we oppose the motion. Whatever mandate the Government may have for national decisions, locally and democratically elected councillors have a mandate for their own decisions in their own localities. I fully accept that they must answer to their electorate. That is what local government is about. The Conservatives came to office on an election manifesto claiming that they would extend the role of local government, but all that they have done is to place it in ever tighter bonds.
I ask all my hon. Friends to support me in voting against the motion.

Mr. Nicholas Edwards: The hon. Member for Cardigan (Mr. Howells) asked whether I believed that services could be maintained. As I said in opening the debate, I believe that they can.
The hon. Member for Caernarvon (Mr. Wigley) referred to an increase in rates by Gwynedd county council. He will know that last year, for reasons that I understand, that authority cut its precept and cut balances. To some extent, therefore, its situation is rather different from that of many other authorities in that it is catching up on a previous decision. It is clear from what the hon. Gentleman said, however, that it intends to exceed the target and will therefore suffer a penalty. That is the decision that it has taken.
The hon. Gentleman is quite wrong, however, to say that a political element enters into the actual formula of grant distribution. Every year since I have had responsibility I have accepted in total and without amendment the GRE formula proposed by the Welsh local authority associations.
Although the hon. Member for Caernarvon was wrong about that, he was absolutely right to point to the central dilemma of the debate. The right hon. Member for Rhondda (Mr. Jones) says that we should provide more for areas of urban deprivation such as Mid-Glamorgan while my hon. Friend the Member for Brecon and Radnor (Mr. Hooson) says that we should provide more for rural areas with problems of sparsity.
I understand and sympathise with both views but sparsity factors are taken into account. They have been revised, not as a discretionary decision taken by me, or as a charitable decision as he implies, but because formulae have been worked out and agreed by negotiation within the local authority associations.
When all has been said about the suffering of the rural areas, it is fair to point out that the GRE per head in Powys is £433 compared with the Welsh county average of £366. Though, my hon. Friend the Member for Montgomery (Mr. Williams) was right to draw attention to the lower figure for the districts, when he quoted £61 or £62 per head, I think that he was referring to the 1981–82 figure. That figure is up to £72 per head for 1983–84. The actual rates bills paid in Powys are about the lowest in Wales. I hope that my hon. Friend the Member for Brecon and Radnor (Mr. Hooson) will, from time to time, take a certain amount of credit for that instead of drawing down upon his head the blame that he appears, in a sense, to be attributing to me.
The right hon. Member for Rhondda and others implied that because there was a reduction in the rate percentage grant of £28 million, that must mean an increase in rates. But he and the hon. Member for Caernarvon entirely ignored the figures that I have spelt out, and the fact that the Welsh local authorities had over-provided previously by more than the amount that he quoted. The right hon. Gentleman asked me whether the associations accepted what I said about maintaining services and the level of rate increases. The associations fully accept that if they spend in line with the settlement there need be no rate increases. They entirely accept the mathematics of the formula. They argue, as the right hon. Gentleman has argued, that in many cases they will not be able to do so. Many of them have taken note of the point in my statement in December, and which I repeated today, about the substantial increase


that has occurred in balances. Many local authorities will think that it is absolutely right to help industry as much as possible and to use some of those balances to hold down the rate burdens. I hope that they will do so.
The right hon. Member for Rhondda also referred to rents. He said that I should hang my head in shame because of what we have done with rents. The right hon. Gentleman was a member of a Government who wanted to do exactly what we have done but did not have the guts or the integrity to do it. The right hon. Gentleman is the one who should be hanging his head in shame. We do not need lectures from him.
As for the criticism that in some cases the targets are being set below GRE, the right hon. Gentleman appeared to be suggesting that Gwent, for example, was not providing a reasonable standard of service. Any individual local authority is perfectly free—Gwent and Gwynedd included—to judge what a reasonable standard of service is and whether it can be provided more economically. Individual local authorities have shown that it is possible to cut numbers and provide an adequate service. Birmingham, for example, has shown that substantial improvements can be made in refuse collecting services by making an agreement with its employees to provide as good a service as previously, but with fewer people. That is an example of what can be done.
The right hon. Gentleman then tried to have it the other way round. Having made the point about targets in some cases being below GRE, he then turned to the problems of Mid-Glamorgan. No one would have judged from what he had said that there the target is set by the Government above GRE in recognition of many of the problems to which he drew attention. The leader of the Mid-Glamorgan council made it clear in his speech before Christmas that he was not acting for the reasons that the right hon. Gentleman set out, but that he was making a deliberate political challenge. His words were widely reported, and he challenged me to hold back in an election year. I made it clear to him, and I make it clear again, that if he likes to issue political challenges of that sort I shall have no hesitation in holding back in an election year. Having set out the targets, we shall ensure that they are carried through.
Scaremongering nonsense has been talked. The right hon. Gentleman said that it would be a monstrous proposition to close all nursery schools in Mid-Glamorgan. I agree with him, but that is not my proposition. It is the proposition that is being advanced, apparently, by the Mid-Glamorgan county council. The county council has a free choice in the way it spends its money and the priorities that it selects.
The settlement that we have made is fair and reasonable. The over-assumptions made by the local authorities previously and the large balances that exist give a real opportunity for authorities not only to hold rates this year but to cut rates for industry and to do something that the right hon. Member for Rhondda says should be a priority, which is to provide jobs. However, he is not prepared to reinforce his words with action.

Question put:

The House divided: Ayes 260, Noes 199.

Division No. 48]
[11.56 pm


AYES


Adley, Robert
Arnold, Tom


Alexander, Richard
Aspinwall, Jack


Ancram, Michael
Atkins, Rt Hon H (S'thorne)





Atkins, Robert (Preston N)
Grant, Sir Anthony


Atkinson, David (B'm'th, E)
Gray, Rt Hon Hamish


Baker, Kenneth (St. M'bone)
Greenway, Harry


Baker, Nicholas (N Dorset)
Griffiths, E. (B'y St. Edm'ds)


Beaumont-Dark, Anthony
Griffiths, Peter (Portsm'th N)


Bendall, Vivian
Grist, Ian


Bennett, Sir Frederic (T'bay)
Gummer, John Selwyn


Benyon, W. (Buckingham)
Hamilton, Michael (Salisbury)


Berry, Hon Anthony
Hampson, Dr Keith


Best, Keith
Hannam, John


Bevan, David Gilroy
Haselhurst, Alan


Biffen, Rt Hon John
Hastings, Stephen


Biggs-Davison, Sir John
Havers, Rt Hon Sir Michael


Blackburn, John
Hawkins, Sir Paul


Blaker, Peter
Hayhoe, Barney


Body, Richard
Heddle, John


Bonsor, Sir Nicholas
Henderson, Barry


Boscawen, Hon Robert
Heseltine, Rt Hon Michael


Bottomley, Peter (W'wich W)
Higgins, Rt Hon Terence L.


Bowden, Andrew
Hogg, Hon Douglas (Gr'th'm)


Boyson, Dr Rhodes
Holland, Philip (Carlton)


Braine, Sir Bernard
Hooson, Tom


Bright, Graham
Hordern, Peter


Brinton, Tim
Howe, Rt Hon Sir Geoffrey


Brittan, Rt. Hon. Leon
Howell, Rt Hon D. (G'ldf'd)


Brooke, Hon Peter
Howell, Ralph (N Norfolk)


Brotherton, Michael
Hunt, David (Wirral)


Brown, Michael (Brigg &amp; Sc'n)
Hunt, John (Ravensbourne)


Browne, John (Winchester)
Irvine, Rt Hon Bryant Godman


Bruce-Gardyne, John
Jessel, Toby


Buck, Antony
Johnson Smith, Sir Geoffrey


Budgen, Nick
Jopling, Rt Hon Michael


Bulmer, Esmond
Joseph, Rt Hon Sir Keith


Butcher, John
Kellett-Bowman, Mrs Elaine


Butler, Hon Adam
Kershaw, Sir Anthony


Carlisle, John (Luton West)
King, Rt Hon Tom


Carlisle, Kenneth (Lincoln)
Knox, David


Carlisle, Rt Hon M. (R'c'n)
Lamont, Norman


Chalker, Mrs. Lynda
Lang, Ian


Channon, Rt. Hon. Paul
Latham, Michael


Chapman, Sydney
Lawrence, Ivan


Churchill, W. S.
Lawson, Rt Hon Nigel


Clark, Hon A. (Plym'th, S'n)
Lee, John


Clark, Sir W. (Croydon S)
Lennox-Boyd, Hon Mark


Clarke, Kenneth (Rushcliffe)
Lester, Jim (Beeston)


Clegg, Sir Walter
Lloyd, Ian (Havant &amp; W'loo)


Cockeram, Eric
Lloyd, Peter (Fareham)


Colvin, Michael
Loveridge, John


Cope, John
Luce, Richard


Costain, Sir Albert
Lyell, Nicholas


Cranborne, Viscount
McCrindle, Robert


Critchley, Julian
Macfarlane, Neil


Crouch, David
MacKay, John (Argyll)


Dickens, Geoffrey
McNair-Wilson, M. (N'bury)


Dorrell, Stephen
McNair-Wilson, P. (New F'st)


Douglas-Hamilton, Lord J.
McQuarrie, Albert


Dunn, Robert (Dartford)
Madel, David


Durant, Tony
Major, John


Dykes, Hugh
Marland, Paul


Eden, Rt Hon Sir John
Marten, Rt Hon Neil


Edwards, Rt Hon N. (P'broke)
Mates, Michael


Eggar, Tim
Mather, Carol


Elliott, Sir William
Maude, Rt Hon Sir Angus


Emery, Sir Peter
Mawby, Ray


Eyre, Reginald
Mawhinney, Dr Brian


Fairbairn, Nicholas
Maxwell-Hyslop, Robin


Fairgrieve, Sir Russell
Mayhew, Patrick


Faith, Mrs Sheila
Mellor, David


Fenner, Mrs Peggy
Meyer, Sir Anthony


Finsberg, Geoffrey
Miller, Hal (B'grove)


Fisher, Sir Nigel
Mills, Iain (Meriden)


Fletcher, A. (Ed'nb'gh N)
Mills, Sir Peter (West Devon)


Fookes, Miss Janet
Miscampbell, Norman


Fowler, Rt Hon Norman
Moate, Roger


Fox, Marcus
Monro, Sir Hector


Gardiner, George (Reigate)
Moore, John


Gardner, Sir Edward
Morgan, Geraint


Garel-Jones, Tristan
Morrison, Hon P. (Chester)


Glyn, Dr Alan
Mudd, David


Goodhart, Sir Philip
Murphy, Christopher






Myles, David
Speed, Keith


Neale, Gerrard
Speller, Tony


Nelson, Anthony
Spicer, Jim (West Dorset)


Neubert, Michael
Spicer, Michael (S Worcs)


Newton, Tony
Sproat, Iain


Normanton, Tom
Squire, Robin


Onslow, Cranley
Stainton, Keith


Oppenheim, Rt Hon Mrs S.
Stanbrook, Ivor


Osborn, John
Stanley, John


Page, John (Harrow, West)
Steen, Anthony


Page, Richard (SW Herts)
Stevens, Martin


Parkinson, Rt Hon Cecil
Stewart, A. (E Renfrewshire)


Parris, Matthew
Stewart, Ian (Hitchin)


Patten, John (Oxford)
Stokes, John


Pattie, Geoffrey
Stradling Thomas, J.


Pawsey, James
Tebbit, Rt Hon Norman


Percival, Sir Ian
Temple-Morris, Peter


Pink, R. Bonner
Thomas, Rt Hon Peter


Pollock, Alexander
Thompson, Donald


Porter, Barry
Thorne, Neil (Ilford South)


Prentice, Rt Hon Reg
Thornton, Malcolm


Price, Sir David (Eastleigh)
Townend, John (Bridlington)


Prior, Rt Hon James
Townsend, Cyril D, (B'heath)


Proctor, K. Harvey
Trippier, David


Raison, Rt Hon Timothy
Vaughan, Dr Gerard


Rathbone, Tim
Viggers, Peter


Rees, Peter (Dover and Deal)
Waddington, David


Rees-Davies, W. R.
Wakeham, John


Renton, Tim
Waldegrave, Hon William


Rhodes James, Robert
Walker, B. (Perth)


Rhys Williams, Sir Brandon
Waller, Gary


Ridley, Hon Nicholas
Ward, John


Rippon, Rt Hon Geoffrey
Warren, Kenneth


Roberts, M. (Cardiff NW)
Watson, John


Roberts, Wyn (Conway)
Wells, Bowen


Rossi, Hugh
Wells, John (Maidstone)


Rost, Peter
Wheeler, John


Rumbold, Mrs A. C. R.
Whitelaw, Rt Hon William


St. John-Stevas, Rt Hon N.
Whitney, Raymond


Shaw, Giles (Pudsey)
Wilkinson, John


Shaw, Sir Michael (Scarb')
Williams, D. (Montgomery)


Shelton, William (Streatham)
Winterton, Nicholas


Shepherd, Colin (Hereford)
Wolfson, Mark


Shepherd, Richard
Young, Sir George (Acton)


Shersby, Michael
Younger, Rt Hon George


Silvester, Fred



Sims, Roger
Tellers for the Ayes:


Skeet, T. H. H.
Mr. Alastair Goodlad and


Smith, Tim (Beaconsfield)
Mr. Archie Hamilton.


NOES


Abse, Leo
Cook, Robin F.


Adams, Allen
Cowans, Harry


Allaun, Frank
Craigen, J. M. (G'gow, M'hill)


Anderson, Donald
Crowther, Stan


Archer, Rt Hon Peter
Cryer, Bob


Ashley, Rt Hon Jack
Cunliffe, Lawrence


Ashton, Joe
Cunningham, Dr J. (W'h'n)


Atkinson, N. (H'gey,)
Dalyell, Tam


Barnett, Guy (Greenwich)
Davidson, Arthur


Beith, A. J.
Davies, Rt Hon Denzil (L'lli)


Benn, Rt Hon Tony
Davis, Clinton (Hackney C)


Bennett, Andrew (St'kp't N)
Davis, Terry (B'ham, Stechf'd)


Booth, Rt Hon Albert
Deakins, Eric


Brown, Hugh D. (Provan)
Dean, Joseph (Leeds West)


Brown, R. C. (N'castle W)
Dewar, Donald


Brown, Ronald W. (H'ckn'y S)
Dixon, Donald


Brown, Ron (E'burgh, Leith)
Dobson, Frank


Buchan, Norman
Dormand, Jack


Callaghan, Rt Hon J.
Douglas, Dick


Campbell, Ian
Dubs, Alfred


Campbell-Savours, Dale
Dunnett, Jack


Canavan, Dennis
Dunwoody, Hon Mrs G.


Carter-Jones, Lewis
Eastham, Ken


Clark, Dr David (S Shields)
Ellis, R. (NE D'bysh're)


Clarke, Thomas (C'b'dge, A'rie)
Ellis, Tom (Wrexham)


Cocks, Rt Hon M. (B'stol S)
Ennals, Rt Hon David


Cohen, Stanley
Evans, loan (Aberdare)


Concannon, Rt Hon J. D.
Evans, John (Newton)


Conlan, Bernard
Flannery, Martin





Ford, Ben
Parker, John


Forrester, John
Parry, Robert


Foster, Derek
Pavitt, Laurie


Foulkes, George
Pendry, Tom


Fraser, J. (Lamb'th, N'w'd)
Powell, Raymond (Ogmore)


Freeson, Rt Hon Reginald
Prescott, John


Garrett, John (Norwich S)
Price, C. (Lewisham W)


Garrett, W. E. (Wallsend)
Race, Reg


George, Bruce
Radice, Giles


Golding, John
Rees, Rt Hon M (Leeds S)


Graham, Ted
Richardson, Jo


Hamilton, James (Bothwell)
Roberts, Allan (Bootle)


Hamilton, W. W. (C'tral Fife)
Roberts, Ernest (Hackney N)


Hardy, Peter
Roberts, Gwilym (Cannock)


Harman, Harriet (Peckham)
Robertson, George


Harrison, Rt Hon Walter
Robinson, G. (Coventry NW)


Hattersley, Rt Hon Roy
Rooker, J. W.


Haynes, Frank
Roper, John


Heffer, Eric S.
Ross, Ernest (Dundee West)


Hogg, N. (E Dunb't'nshire)
Rowlands, Ted


Holland, S. (L'b'th, Vauxh'll)
Ryman, John


Home Robertson, John
Sever, John


Homewood, William
Sheerman, Barry


Hooley, Frank
Sheldon, Rt Hon R.


Howells, Geraint
Shore, Rt Hon Peter


Hoyle, Douglas
Silkin, Rt Hon J. (Deptford)


Huckfield, Les
Silkin, Rt Hon S. C. (Dulwich)


Hughes, Robert (Aberdeen N)
Silverman, Julius


Hughes, Roy (Newport)
Skinner, Dennis


Janner, Hon Greville
Smith, Rt Hon J. (N Lanark)


John, Brynmor
Snape, Peter


Johnson, James (Hull West)
Soley, Clive


Jones, Rt Hon Alec (Rh'dda)
Spearing, Nigel


Kaufman, Rt Hon Gerald
Spellar, John Francis (B'ham)


Kerr, Russell
Spriggs, Leslie


Kilroy-Silk, Robert
Stallard, A. W.


Kinnock, Neil
Steel, Rt Hon David


Lambie, David
Stoddart, David


Lamond, James
Stott, Roger


Leadbitter, Ted
Strang, Gavin


Leighton, Ronald
Straw, Jack


Lewis, Ron (Carlisle)
Summerskill, Hon Dr Shirley


Litherland, Robert
Taylor, Mrs Ann (Bolton W)


Lofthouse, Geoffrey
Thomas, Dafydd (Merioneth)


McCartney, Hugh
Thomas, Dr R. (Carmarthen)


McDonald, Dr Oonagh
Thorne, Stan (Preston South)


McElhone, Mrs Helen
Tilley, John


McGuire, Michael (Ince)
Tinn, James


McKay, Allen (Penistone)
Torney, Tom


McKelvey, William
Varley, Rt Hon Eric G.


MacKenzie, Rt Hon Gregor
Wainwright, E. (Dearne V)


McNamara, Kevin
Walker, Rt Hon H. (D'caster)


McWilliam, John
Wardell, Gareth


Marks, Kenneth
Watkins, David


Marshall, D (G'gow S'ton)
Weetch, Ken


Marshall, Jim (Leicester S)
Welsh, Michael


Martin, M (G'gow S'burn)
White, Frank R.


Mason, Rt Hon Roy
White, J. (G'gow Pollok)


Maxton, John
Whitehead, Phillip


Maynard, Miss Joan
Whitlock, William


Meacher, Michael
Wigley, Dafydd


Mikardo, Ian
Williams, Rt Hon A.(S'sea W)


Millan, Rt Hon Bruce
Wilson, William (C'try SE)


Miller, Dr M. S. (E Kilbride)
Winnick, David


Mitchell, Austin (Grimsby)
Woodall, Alec


Morris, Rt Hon C. (O'shaw)
Woolmer, Kenneth


Morris, Rt Hon J. (Aberavon)
Wright, Sheila


Moyle, Rt Hon Roland
Young, David (Bolton E)


Newens, Stanley



Oakes, Rt Hon Gordon
Tellers for the Noes:


O'Neill, Martin
Mr. George Morton and


Palmer, Arthur
Dr. Edmund Marshall.


Park, George

Question accordingly agree to

Resolved,
That the Welsh Rate Support Grant Report 1980 (Supplementary) (No. 2) (Amendment) Report 1982, which was laid before this House on 17th January, be approved.

Resolved,
That the Welsh Rate Support Grant Report 1982 (Supplementary) Report 1982, which was laid before this House on 20th December, be approved.
That the Welsh Rate Support Grant Report 1982 (Supplementary) (Amendment) Report 1982, which was laid before this House on 17th January, be approved.
That the Welsh Rate Support Grant Report 1983–84, which was laid before this House on 20th December, be approved.—[Mr. Nicholas Edwards.]

Philippines (Aid)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. David Hunt.]

Mr. Tom Clarke: I take this opportunity to congratulate the Minister for Overseas Development on his appointment, as I understand that this is the first occasion upon which he will be addressing the House on aid matters. From my brief experience in the House, I know that he will find the debates on Third world matters more agreeable than his previous experience on other matters might have been.
I feel that it is right that we should have this debate not only to discuss the important matter of Mindanao but to deal with the wider implications of Government policy on aid, and particularly to the Philippines.
I congratulate the right hon. Gentleman's predecessor on recent events, but some of us were slightly surprised that the announcement about Mindanao took place on 5 January, during the recess, after we had had two fairly important debates on the Third world when hon. Members might have expected an announcement of that kind. I questioned the Prime Minister on that subject on 2 December. Her reply implied that the announcement would be made soon. Because of the great interest in the matter on both sides of the House, expressed by my hon. Friends the Members for Greenwich (Mr. Barnett), Lambeth, Central (Mr. Tilley) and Harlow (Mr. Newens) and by the hon. Members for Essex, South-East (Sir B. Braine) and Ludlow (Mr. Cockeram), who made powerful speeches on the subject, I thought that a statement would have been made while the House was sitting.
The press statement that was made contained these words:
the Minister for Overseas Development has agreed that the Commonwealth Development Corporation should participate in an oil palm project in the Philippines being undertaken by National Development Company of the Philippines—Guthrie Plantations Incorporated, to which CDC will be lending £6·4 million.
That was an important statement. The statement as it stood, while endeavouring to meet some of the criticisms that have been made and some of the serious views on both sides of the House, was in some respects a little naive. For example, it said:
NGPI have invited CDC to station a representative in the area to monitor these provisions on a continuing basis, and also to nominate a CDC director to their Board.
I should like to ask some questions about that appointment. Running through the statement is the suggestion that we should have greater reliance on the endeavours of the Filipinos in those matters than I feel recent history entitles us to have. The statement also said:
The NDC have given an assurance that the service has no connection now nor will have in the future with The Lost Command or its leader, Colonel Lademora.
There has been no evidence, much as we would wish to see it, that the Government's position is so strong as to encourage that assertion to be made. Whereas all hon. Members have the highest regard for the CDC and wish it well in its endeavours, and although it has the good will of the House, we must urge upon it constant vigilance when dealing with the people who will be involved in the project.
That is why I should like to ask the Minister about the specific responsibilities of the person who is to monitor the


provision. Will that person be the manager of another plantation? If so, that is some distance away from the point where one would expect managerial involvement on a day-to-day basis in view of the serious nature of the commitment. I should like to hear the Minister's statement on that matter.
The statement also contains these words:
The drawdown of the CDC loan after June 1983 will be conditional upon CDC being satisfied with implementation of the new security arrangements.
I wonder what measure the Minister sets for satisfaction and who, for example, will decide how effective or acceptable the implementation is. What will be the general guidelines? I should like to have more information on that point, as would many people who are deeply interested in the matter. There are those who, while encouraging the CDC, have great reservations about how the Government attempt to approach all the problems.
There are and ought to be serious Government responsibilities. The Government cannot shut out all of these responsibilities and leave them with the CDC, particularly in view of the delicate situation in the Philippines.
Amnesty International, which has a splendid record in these matters, made a comment which should be repeated. I ask the Minister to note its views:
Amnesty's investigation of the activities of the Lost Command suggest that this pars-military group has considerable entrenched power in the area in which the CDC assisted project will operate … The Lost Command is almost certain to attempt to assert that influence with regard to a project as economically important as this one.
It is for that reason that I believe the House will wish to have the maximum possible surveillance of these matters and to discuss the progress or otherwise that has been made from time to time.
I end with some general remarks. The standing of Great Britain, the basis of our commitment to human rights and our attitude to developing countries may be judged by how well these matters progress. It ought to be made clear that, whatever our views on aid, we cannot accept the abuse of human rights which has been taking place in the Philippines under President Marcos.
Martial law was imposed 11 years ago. Two years ago we were told that it had ended. This, in my view, represented nothing other than the kind of public relations excercised by President Marcos and his regime to which most of us have now become accustomed and which ought not to be taken too seriously.
Despite seven decades of parliamentary government in the Philippines, it is a sad fact that the state of affairs described so eloquently in the recent report by the Amnesty International mission to the Republic of the Philippines does exist.
There is a responsibility on the House to assert its views on these matters; to resist the denial of human rights in the Philippines and attacks on trade unions to the extent that an old man of 79 is still in prison because of his trade unions views; to express its repugnance at attacks on the Church; to recognise that the Church is endeavouring to express the views of the people it seeks to serve and to represent; to resist the militarism of the Philippines; and particularly to express itself very clearly on the so-called "salvaging policy" of people being murdered and

disappearing without explanation. There are tortures in prison, and so on. I am sure that all of this is totally unacceptable to hon. Members on both sides of the House.
I have said this in the knowledge that we wish the CDC well and wish it success in its endeavours. Many people remember with gratitude the ideas that CDC seeks to expound. They were first expressed by Creech Jones. Those ideas are still relevant today. Nevertheless, we must be extremely careful that our policies on aid and development are not taken to mean that as a nation or as a House we are propping up regimes whose attitudes to the basic fundamental rights in which we believe are totally unacceptable. It was Edmund Burke who said that all that is necessary for the triumph of evil is that good men should do nothing. The importance of this debate is that even by discussing these matters, the House is saying that in the light of the appalling record of the Government of the Philippines, we at least can be seen to be doing something.

Sir Neil Marten: rose——

Mr. Deputy Speaker (Mr. Paul Dean): Does the right hon. Gentleman have the agreement of the hon. Member for Coatbridge and Airdrie (Mr. Clarke) to intervene in his Adjournment debate?

Sir Neil Marten: That is so, Mr. Deputy Speaker.

Mr. Deputy Speaker: Sir Neil Marten.

Sir Neil Marten: I am sorely tempted to answer the speech of the hon. Member for Coatbridge and Airdrie (Mr. Clarke), thereby relieving my right hon. Friend of that task. However, I shall not do so, as it is not up to me. As I was the Minister who took the decision to allow the CDC to go ahead with this project, I thought that I should just say that it was my decision.
I heard the evidence from the various voluntary agencies concerned with this matter. We heard a lot about it in the debate in the House. I recognise people's feelings, particularly about the Lost Command. I took all those considerations into account, but I had to decide "Yes" or "No". It was no good hanging fire.
I am sorry that the decision was announced during the recess, but had Parliament not had such a long recess it would have been announced during our first week back. On balance, I took the decision that on the whole the record of the CDC is so good that it would be of benefit to the poor in that area to have the CDC there. That is why I took the decision, and that is all that I wish to say.

The Minister for Overseas Development (Mr. Timothy Raison): I thank the hon. Member for Coatbridge and Airdrie (Mr. Clarke) for his kind words about my appointment to this job. I am very much aware of the responsibilities that I have inherited.
This is clearly a significant subject. I am conscious of what and whom I have to follow. I know that my right hon. Friend the Member for Banbury (Sir N. Marten) commands enormous respect in the House and outside, and has done so for many years. He put in a nutshell what I shall say, and I am tempted to sit down, but on my first appearance at the Dispatch Box in this new role that might be thought to be a somewhat cursory approach. I shall therefore try to set out the considerations that have guided


our approach. I reinforce what my right hon. Friend has said. The decisions were his, but they seem to me to be exactly right.
The subject of this debate is British policy on aid to the Philippines, and hon. Members will know that most British bilateral aid is directed towards the poorest developing countries and to members of the Commonwealth. My right hon. Friend is particularly associated with the cause of the Commonwealth.
Although in neither category, we recognise that the Philippines is a member of ASEAN, the Association of South-East Asian Nations—a group whose objectives we generally support, and which is playing an increasingly important role in the affairs of South-East Asia and the Pacific. Our aid involvement in the Philippines is, however, very small compared with that of say, Japan or the United States, Belgium, Germany and Australia. It is roughly on a par with countries such as France and the Netherlands.
We have a small technical co-operation programme, costing about £150,000 a year. This is almost entirely devoted to meeting the cost of training Filipinos, mainly from the public sector in this country. Our funds cover the cost of about 16 new training awards each year.
We are also giving support, under the joint funding scheme, to British voluntary agencies working with local groups on small-scale projects in the Philippines. Such support will be in excess of £240,000 over the period 1981 to 1984. In addition, some 18 volunteers are recruited by Voluntary Service Overseas, which, of course, operates entirely independently of the Government, although it is in receipt of substantial funds from my Department.
When suitable opportunities have arisen, we have made allocations—there have been two to date—from the aid and trade provision in support of British firms competing for sound development of projects. Finally, there are the activities of the Commonwealth Development Corporation, on which the hon. Member for Coatbridge and Airdrie has touched.
In addition, the Philippines receives assistance through multilateral organisations such as the World Bank, the Asian Development Bank, the European Community, and the various specialised agencies of the United Nations, to which the United Kingdom is a substantial donor. Nevertheless, our share of the total aid provided from all international and bilateral sources to the Philippines is less than 2 per cent. of the total.
The hon. Member for Coatbridge and Airdrie, however, has expressed particular anxiety about human rights in general in the Philippines. Although this is not relevant to British aid policy towards the Philippines except in the most general terms, let me first make it clear that the Government deplore all abuses of human rights, whether in the Philippines or anywhere else. The Philippine Government are well aware of our views. We were encouraged by their decision to lift martial law in January 1981, after nine years, throughout most of the country.
I would not wish to pretend that we regard the treatment of human rights there as beyond reproach. It is not. But there are infringements of human rights in many countries; and these issues are all too often closely associated in particular with developing countries.
The Commonwealth Development Corporation's proposed investment in Mindanao brings into sharp focus the conflicting factors which we have to weigh up in many

of our relationships with developing countries. It is fair to say, though, that observers of the CDC's involvement in this project would readily admit that they have been able to gather information with surprisingly little difficulty, even though much of it has been critical of the policy of the Philippines Government and of the behaviour of its security forces.
I think the facts of CDC's involvement in this plantation project are well known to hon. Members. I shall briefly run over the background.
Last summer CDC sought approval for a loan of up to £6·5 million to a company, NGPI, formed by the National Development Company of the Philippines and Guthries to develop an oil palm estate in the island of Mindanao in the Philippines. A parallel loan of the same amount would be made by the International Finance Corporation, an affiliate of the World Bank.
It was at this stage, last August, that the Catholic Institute for International Relations drew to the attention of my right hon. Friend the Member for Banbury and the CDC the fact that NGPI was employing members of a paramilitary organisation known as the Lost Command as its security force. This organisation is engaged in anti-guerilla operations but, it is alleged, has committed serious violations of human rights, including murder and extortion, in the province of Agusan del Sur in which the NGPI project is located. CIIR asked that CDC should withdraw from any projects in which the National Development Company was involved until the Lost Command was removed from the area.
Following these representations, arrangements were made by the general manager and other officials of CDC to visit the Philippines to look into these allegations and review the position on the spot. This they did in the latter part of October.
During his visit, the general manager of CDC succeeded in negotiating a number of undertakings about security arrangements with the Philippine authorities. The board of CDC subsequently sought approval from my right hon. Friend the Member for Banbury to proceed with the project with these new safeguards. He decided that before reaching a decision it would be right for him to discuss the matter fully and openly with a number of right hon. and hon. Members who had expressed concern, the voluntary agencies which had made representations and the CDC.
A meeting was held on 29 November; and in the light of it, as my right hon. Friend reported to the House on 7 December, he asked the CDC to seek to secure adequate safeguards concerning the new security arrangements and the observation of fair employment practices, as well as the association of peasant farmers with later stages of the project.
The CDC held further discussions in the Philippines in December. As a result, the CDC received from the National Development Company and NGPI their agreement to provide a number of contractual undertakings and assurances and my right hon. Friend, therefore gave his approval to the CDC lending £6·4 million to the project.
The contractual undertakings that the National Development Company and NGPI have agreed to give cover two areas. A new security force for the estate will be provided by the National Development Company to replace the existing force. It is now being raised and trained and will be available to NGPI by the end of June 1983 at the latest. It will form part of a new security service, which is being set up by the National Development Company to serve all its subsidiary companies and it will be responsible for the protection of the estate's employees and its property and assets.
NGPI has also undertaken to take all practicable measures to protect its employees against harassment; to provide suitable medical and educational facilities and, where appropriate, housing; and to continue to pay employees at rates complying with the requirements of Philippine law and comparable with rates payable on similar estates in the region. CDC will have the right to withhold loan disbursements after 30 June 1983 if these provisiona are not observed to its satisfaction or at any time after that date while any part of the loan remains undisbursed.
In addition, the National Development Company has assured CDC that the new security service has no connection now, nor will there be in the future, with the Lost Command or its leader, Colonel Lademora. Pending the replacement of the existing security force, a detachment of the Philippines constabulary has been established in the middle of the project area to ensure that there is no disruption during the transitional period.
The CDC board has given assurances that, in its judgment, it feels that the measures taken to replace the Lost Command are likely to be effective. I am confident that the main point originally made by CIIR and Amnesty International has therefore been met. I realise that they might have wished the disbandment of the Lost Command

to be achieved, but I do not believe, in all honesty, that this is properly a matter for the British Government or for CDC.
The National Development Company and NGPI have also assured CDC that they intend to provide for significant participation by peasant farmers, if they so wish, in later stages of the project. They have invited CDC to station a representative in the area to monitor these undertakings. He will be the CDC development manager resident nearby in the same province, who is engaged in investigating and preparing a separate CDC project and who will be able to visit the NGPI project frequently. CDC, as the House knows, has also been invited to nominate a director to the board. This will be CDC's regional controller in south-east Asia. It really should be possible for CDC to exercise a close supervision of what is going on in the scheme.
I believe that the undertakings and assurances that have been secured since CIIR first raised the matter are significant and valuable concessions, representing a real attempt to meet the criticisms that have been made. They should enable CDC to ensure that the project is carried out to the standards that it would normally expect elsewhere in the world. The project is providing nearly 2,000 jobs in an area where there are virtually no other employment opportunities.
CDC's experience with similar developments in neighbouring countries is that the secondary development effects are quick to spread to local villages and townships. Above all, however, a substantial demand has manifested itself from small farmers who wish to become associated with the scheme as outgrowers and thus be given access to growing a remunerative cash crop. I accept the need for vigilance, but I trust that the undertakings and assurances which I have outlined will permit the security and success of the project, which I believe can bring real benefits to the people in a poor and seriously undeveloped part of Mindanao.

Question put and agreed to.

Adjourned accordingly at twenty-six minutes to One o'clock.